Asked by Trent Crosswell on May 10, 2024
Verified
The Johnson Company bought a truck costing $60,000 two years ago. The truck's estimated life was six years at the time of purchase. It was accounted for by using straight line depreciation with zero salvage value. If the truck was sold yesterday for $65,000, what is the capital gain that must be reported on the sale of the truck?
A) $20,000
B) $25,000
C) $30,000
D) $35,000
E) $40,000
Capital Gain
The increase in the value of a capital asset that gives it a higher worth than the purchase price.
Straight Line Depreciation
A strategy for dividing the cost of a material asset into equal yearly portions throughout its estimated useful duration.
Salvage Value
The estimated residual value of an asset after its useful life has ended.
- Execute depreciation computations and recognize their influence on financial reports.
Verified Answer
HC
Heather CuretonMay 15, 2024
Final Answer :
B
Explanation :
The annual depreciation expense for the truck is $60,000/6 = $10,000 per year.
After two years, the accumulated depreciation would be $20,000 ($10,000/year x 2 years).
Therefore, the book value of the truck would be $60,000 - $20,000 = $40,000.
When the truck is sold for $65,000, the capital gain is $65,000 - $40,000 = $25,000. Therefore, the answer is choice B) $25,000.
After two years, the accumulated depreciation would be $20,000 ($10,000/year x 2 years).
Therefore, the book value of the truck would be $60,000 - $20,000 = $40,000.
When the truck is sold for $65,000, the capital gain is $65,000 - $40,000 = $25,000. Therefore, the answer is choice B) $25,000.
Learning Objectives
- Execute depreciation computations and recognize their influence on financial reports.