Question

On Dec. 31, 2019: Sold a truck that was purchased at $25,000 on Jan. 1, 2017. (5 year life, salvage value $5,000, straight-line method). The truck was sold for $5,000. Which of the following is correct?

Gain on disposal, $4,000

Loss on disposal, $4,000

Gain on disposal, $8,000

Loss on disposal, $8,000

Answer 1

Loss on disposal, $8,000

CALCULATIONS:

Depreciation (as per SLM) = (Cost - salvage value) / Number of years

A	Cost	$ 25,000
B	Residual / Salvage Value	$   5,000
C	Number of years	5
(A-B)/C	Depreciation (SLM)	$   4,000

Now,

Year	Value at the beginning	Depreciation every year	Accumulated depreciation	Value at the end
2017	$                         25,000	$                              4,000	$                                   4,000	$              21,000
2018	$                         21,000	$                              4,000	$                                   8,000	$              17,000
2019	$                         17,000	$                              4,000	$                                 12,000	$              13,000

Loss = $ 13,000 - $ 5,000 = $ 8,000

Clearly, option d is correct and other options are incorrect.