Asked by Mackenzie Magaoay on May 26, 2024
Verified
A firm had a piece of machinery that cost $7,000 when new and has accumulated $4,500 in depreciation. If the machine is sold for $4,000, which of the following is true?
A) The firm has a taxable gain of $4,000 on the sale of the machine
B) The firm has a taxable gain of $1,500 on the sale of the machine
C) The firm has a deductible loss of $3,000 on the sale of the machine
D) The firm has a taxable gain of $7,000 on the sale of the machine
Accumulated Depreciation
The cumulative depreciation of an asset up to a single point in its life, reflecting its decrease in value over time.
Taxable Gain
The profit that is subject to taxation, realized from the sale of an asset or investment.
Deductible Loss
A financial loss that can be subtracted from income for tax purposes, reducing the taxable income.
- Understand the concept of depreciation and its impact on financial statements.
Verified Answer
DM
Daniel MyersMay 26, 2024
Final Answer :
B
Explanation :
The taxable gain or loss on the sale of an asset is calculated by taking the difference between the selling price and the book value (in this case, the cost minus accumulated depreciation). Therefore, the book value of the machinery is $7,000 - $4,500 = $2,500. Since the firm sold the machine for $4,000, the taxable gain is $4,000 - $2,500 = $1,500. Therefore, choice B is the correct answer.
Learning Objectives
- Understand the concept of depreciation and its impact on financial statements.