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    hypervy's Avatar
    hypervy Posts: 3, Reputation: 1
    New Member
    		  
    #1

    Mar 25, 2007, 09:01 AM
    Recording Depreciation
    Another homework question.

    An asset's book value is $18,000 on June 30, 2007. The asset is being depreciated at an annual
    rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31, 2008 for
    $15,000, the company should record:
    A loss on sale of $1,500.
    A gain on sale of $1,500.
    Neither a gain nor a loss is recognized on this type of transaction.
    A gain on sale of $3,000.
    A loss on sale of $3,000.

    I believe the correct answer is the second-gain on sale of $1500 because there has only been a 6 month period to account for the depreciation so it is $1500 vice $3000.

    Am I looking at this correctly?

    Thanks
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
    Ultra Member
    		  
    #2

    Mar 25, 2007, 01:14 PM
    I am assuming the year end is June 30 and that the 18,000 book value includes depreciation for 06-07.

    Therefore,
    June 30, 2008, Book Value is 15,000

    Asset sold December 31, 2008 for 15,000

    Therefore, the journal entry is:
    Dr. Cash 15,000
    Dr. Depreciation Expense 1,500 (3,000 x .5)
    Cr. Book Value of asset 15,000
    Cr. Gain 1,500

    Conclusion, yes, a gain of 1,500 is correct.
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