An asset was acquired on january 1, 2021, for $15,000 with an estimated 4-year life and $1,000 residual value. the company uses straight-line depreciation. calculate the gain or loss if the asset was sold on december 31, 2023, for $5,000.

a. $500 gain
b. $3,000 loss
c. $1,500 gain
d. $500 loss

b. $3,000 loss

Explanation:

For computing the gain or loss, first we have to determine the depreciation expense so that we can find the book value of an asset

So, under the straight-line method, the depreciation expense would be

= (Original cost - residual value) ÷ (useful life)  

= ($15,000 - $1,000) ÷ (4 years)  

= ($14,000) ÷ (4 years)  

= $3,500  

For two years, the depreciation would be

= $3,500 × 2 years

= $7,000

In this method, the depreciation is same for all the remaining useful life

Now the book value would be

= Acquired value of an asset - accumulated depreciation  

= $15,000 - $7,000

= $8,000

So, the gain would be

= Sale value - book value

= $5,000 - $8,000

= $3,000 loss

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