Chapter 18, Problem 3MC

### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

Chapter
Section

### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
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).

DepreciationÂ forÂ theÂ periodÂ =Â AnnualÂ depreciationÃ—Â TimeÂ period=$700Ã—312=$175

Step 2: Compute book value on the date of sale

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