   Chapter 18, Problem 3MC

Chapter
Section
Textbook Problem

A computer was sold on April 1, 20-2, for $575. Its cost was$3,000, and accumulated depreciation as of December 31, 20-1, was $2,100 ($700 a year). (a) There was a gain of $150. (b) There was a loss of$150. (c) There was a gain of $325. (d) There was a loss of$325.

To determine

Find the correct option that indicates the correct output for the given transaction.

Explanation

Long-term assets: The assets which are used to generate revenue for the business operations for a number of accounting periods are referred to as long-term assets or plant assets.

Gain or loss on sale: Gain on sale is the amount realized on sale transaction, when the sale proceeds is more than the book value of the asset on the date of sale. Loss on sale is the amount realized on sale transaction, when the sale proceeds is less than the book value of the asset on the date of sale. Book value is the amount of acquisition cost of less accumulated depreciation as on date of disposal.

Determine the gain or loss on sale of computer.

Step 1: Compute depreciation for the period December 31, 20-1 to April 1, 20-2 (3 months).

Depreciation for the period = Annual depreciation× Time period=$700×312=$175

Step 2: Compute book value on the date of sale

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