A company sells a long-lived asset that originally cost $200,000 for $50,000 on December 31, 2011. The accumulated depreciation account had a balance of $110,000 after the current year's depreciation of $45,000 had been recorded. The company should recognize a:
A) $100,000 loss on sale.
B) $40,000 gain on sale.
C) $40,000 loss on sale.
D) $25,000 loss on sale.

Question

Quizplus · Accepted Answer

In this scenario, the book value of the asset can be calculated as:
Book value = Cost of asset - Accumulated depreciation
= $200,000 - $110,000
= $90,000

Since the asset was sold for $50,000, the company incurred a loss on the sale. The amount of the loss can be calculated as:
Loss on sale = Book value - Sale price
= $90,000 - $50,000
= $40,000

Therefore, the correct answer is option C, which states that the company should recognize a $40,000 loss on the sale.

A Company Sells a Long-Lived Asset That Originally Cost $200,000