A company sold a tractor that originally cost $135,000 for $30,000 cash. The accumulated depreciation on the tractor was $69,000. The company should recognize:Multiple ChoiceA gain of $30,000.A loss of $30,000.A gain of $36,000.A gain of $66,000.A loss of $36,000.
Question
A company sold a tractor that originally cost 30,000 cash. The accumulated depreciation on the tractor was 30,000.A loss of 36,000.A gain of 36,000.
Solution
To answer this question, we first need to calculate the book value of the tractor. The book value is calculated by subtracting the accumulated depreciation from the original cost of the tractor.
Here's how you do it:
- Original cost of the tractor = $135,000
- Accumulated depreciation = $69,000
- Book value = Original cost - Accumulated depreciation = 69,000 = $66,000
The tractor was sold for $30,000, which is less than its book value. This means the company made a loss on the sale.
To calculate the loss, subtract the sale price from the book value:
Loss = Book value - Sale price = 30,000 = $36,000
So, the company should recognize a loss of 36,000".
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