A company sells a long-lived asset which originally cost $150,000 for $50,000 on December 31, 2014. The accumulated depreciation account had a balance of $60,000 after the current year's depreciation of $15,000 had been recorded. The company should recognize a
A) $100,000 loss on disposal.
B) $40,000 gain on disposal.
C) $40,000 loss on disposal.
D) $25,000 loss on disposal.

Question

Quizplus · Accepted Answer

The loss on disposal is calculated by subtracting the asset's book value at the time of sale from the sale proceeds. The book value is the original cost minus accumulated depreciation. Here, the original cost is $150,000 and the accumulated depreciation is $60,000, making the book value $90,000 ($150,000 - $60,000). The sale proceeds are $50,000. Therefore, the loss on disposal is $40,000 ($90,000 - $50,000).

A Company Sells a Long-Lived Asset Which Originally Cost $150,000