Question

Computing Depreciation, Net Book Value, and Gain or Loss on Asset Sale Lynch Company owns and operates a delivery van that originally cost $47,900. Lynch has recorded straight-line depreciation on the van for four years, calculated assuming a $5,000 expected salvage value at the end of its estimated six-year useful life. Depreciation was last recorded at the end of the fourth year, at which time Lynch disposes of this van. a. Compute the net book value of the van on the disposal date. $Answer b. Compute the gain or loss on sale of the van if the disposal proceeds are: Use a negative sign with your answer if the sale results in a loss. 1. A cash amount equal to the van’s net book value. $Answer 2. $21,800 cash. $Answer 3. $17,800 cash.

Answer 1

Part A	Original cost of asset	$47,900
Less:	Salvage value	$5,000
	Depreciable value of asset	$42,900
	Annual Depreciation	$7,150
	($42,900/6)
	Accumulated depreciation for 4 years	$28,600
	($7,150*4)
	Net Book value at the end of 4th year	$19,300
Part B	Compuatation of Gain/(Loss) on sale
1	Selling value(Cash received)	$19,300
	Less:Net Book value on disposal date	$19,300
	Gain/(Loss)	$0
2	Selling value(Cash received)	$21,800
	Less:Net Book value on disposal date	$19,300
	Gain on sale	$2,500
3	Selling value(Cash received)	$17,800
	Less:Net Book value on disposal date	$19,300
	Loss on sale	-$1,500