On January 1, 2023, Jacob Incorporated purchased a commercial truck for $48,000 and uses the straight-line depreciation method. The truck has a service life of eight years and an estimated residual value of $8,000. On December 31, 2024, Jacob Incorporated sold the truck for $43,000. What amount of gain or loss should Jacob Incorporated record on December 31, 2024?Multiple ChoiceGain, $5,000Loss, $18,000Loss, $3,000Gain, $22,000
Question
On January 1, 2023, Jacob Incorporated purchased a commercial truck for 8,000. On December 31, 2024, Jacob Incorporated sold the truck for 5,000Loss, 3,000Gain, $22,000
Solution
To solve this problem, we first need to calculate the annual depreciation of the truck.
Step 1: Calculate the depreciable base. Depreciable base = Cost of asset - Residual value Depreciable base = 8,000 = $40,000
Step 2: Calculate the annual depreciation. Annual depreciation = Depreciable base / Service life Annual depreciation = 5,000
This means that the truck depreciates by $5,000 each year.
Step 3: Calculate the book value of the truck at the end of 2024. Book value at the end of 2024 = Cost of asset - (2 years of depreciation) Book value at the end of 2024 = 5,000) = $38,000
Step 4: Calculate the gain or loss from the sale of the truck. Gain or loss = Selling price - Book value at the end of 2024 Gain or loss = 38,000 = $5,000
Since the selling price is higher than the book value at the end of 2024, Jacob Incorporated should record a gain of 5,000".
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