On january 1, 20x1, a company 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, 20x3, the company sold the truck for $30,000. what amount of gain or loss should the company record on december 31, 20x3?

a. 5,000
b. 15000
c. 33000
d. 3000

D. Loss of $3,000

Explanation:

Cost = $48,000

Residual value = $8,000  

Useful life = 8 years  

Now,  

Annual straight line depreciation =  

Annual straight line depreciation =  

Annual straight line depreciation =  

Annual straight line depreciation = $5,000

If Book value > Selling price then the firm incurred loss on sale of asset.

If book value < selling price  then the firm incurred gain on sale of asset.

Here,

Book value (at the time of sale) = $33,000

Selling price = $30,000

Therefore, the company incurred loss on sale of asset.

Loss on sale of commercial truck = Book value (at the time of sale) - Selling price

Loss on sale of commercial truck = $30,000 - $30,000

Loss on sale of commercial truck = $3,000

Note:

Annual depreciation expense is transferred to the accumulated depreciation. Thus, accumulated depreciation is sum of depreciation expense charged over the useful life of the asset.  

Depreciation table has been constructed to compute the accumulated depreciation on 31st December 2017.

Net Income                   112,400

Depreciation expense 120,000

Gain at disposal (furnishing)   (3200)

Loss at Disposal (equipment)    800

Credit card receivables Increased (680)

Accounts receivable Increased (1,500)

Inventories Increased (1,200)

Prepaid expenses Decreased 800

Accounts payable Decreased (2,100)

Accrued payroll payable Increased 2,400

Taxes payable Decreased (900)

Cashflow from operating       226420

Investing Activities

Sale of furnishing     8,600

Sale of equipment   2,000

Purchase of furnishing (16,800)

Purchase of equipment (24,200)

Cash flow used on investing activities 30,400

Financing Activities

payment to lenders      (54,800)

Cash dividends paid   (122,400)

Cash flow used on financing activities 177,200

Cash balance at Dec 31th 2008 30,840

Cash balance at Dec 31th 2007 12,020

Cashflow generated for the year ended Dec 31th 2008 18,820

Explanation:

From the net income we remove the non-monettary terms

as gain at disposal, loss at disposal and depreciation.

Increase in assets decrease the cash as it was used to acquired

increase of liabilities increase cahs as payment was delayed

the opposite is true when these variables decreases.