Question

On January 1, 2018, Jacob Inc. purchased a commercial truck for $48,000 and uses the straight-line depreciation method. The truck has a useful life of eight years and an estimated residual value of $8,000. Assume the truck was totaled in an accident on December 31, 2019. What amount of gain or loss should Jacob Inc. record on December 31, 2019?

A.Loss, $38,000.
B.Loss, $18,000.
C.Loss, $3,000.
D.Gain, $5,000.

Answer 1

The amount of loss should Jacob Inc. record on December 31, 2019 is $38,000

Step-by-step explanation:

Truck Value = $48,000

Annual depreciation = ( $48,000 - $8,000) / 8 = $40,000 / 8= $5,000

First year (2018) = $40,000 - $5,000 = $35,000

Second year (2019) = $35,000 - $5,000 = $30,000

Loss = Truck Value (actual) + estimated residual value= $30,000 + $8,000 = $38,000