Costello Company purchased a computer that cost $10,000.It had an estimated useful life of 5 years and no residual value.The computer was depreciated by the straight-line method and was sold at the end of the second year of use for $5,000 cash.Costello should record:
A)a loss of $1,000.
B)a gain of $1,000.
C)neither a gain nor a loss - the computer was sold at its book value.

Question

Quizplus · Accepted Answer

The annual straight-line depreciation for the computer is $10,000 ÷ 5 years = $2,000 per year. After two years of use, the accumulated depreciation is $4,000 ($2,000 × 2 years). The book value of the computer at the time of sale is $6,000 ($10,000 - $4,000). Since the computer was sold for $5,000, there is a loss of $1,000 ($5,000 - $6,000). Therefore, Costello should record a loss of $1,000.

Costello Company Purchased a Computer That Cost $10,000