Question

# On January 1, 2010, Jacob Inc. purchased a commercial truck for \$48,000 and uses the straight-line...

On January 1, 2010, Jacob Inc. purchased a commercial truck for \$48,000 and uses the straight-line depreciation method. The truck has a useful life of eight years and an estimated residual value of \$8,000. On December 31, 2012, Jacob Inc. sold the truck for \$30,000. What amount of gain or loss should Jacob Inc. record on December 31, 2012?

A. Gain, \$3,000

B. Loss, \$18,000

C. Gain, \$18,000

D. Loss, \$3,000

Depreciation expense under straight-line method

Depreciation expense = [Cost – Residual value] / Useful life

= [\$48,000 - \$8,000] / 8 Years

= \$40,000 / 8 Years

= \$5,000 per year

The accumulated depreciation expense as on December 31, 2012

The accumulated depreciation expense as on December 31, 2012 = \$5,000 per year x 3 Years

= \$15,000

Book value of the asset as on December 31, 2012

Book value of the asset as on December 31, 2012 = Cost – Accumulated Depreciation expense

= \$48,000 - \$15,000

= \$33,000

Loss on sale of asset

Here, the Sale value of the asset is less than the book value of the asset, therefore, the Loss on sale of asset = Sale value – Book Value

= \$30,000 - \$33,000

= \$3,000 (Loss)

Therefor, the answer is (D). Loss, \$3,000

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