Question

On January 1, 2016, 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. On December 31, 2018, Jacob Inc. sold the truck for $30,000. What amount of gain or loss should Jacob Inc. record on December 31, 2018?

A.Loss, $3,000.
B.Loss, $18,000.
C.Gain, $22,000.
D.Gain, $5,000.

Answer 1

D.Gain, $5,000.

Step-by-step explanation:

Truck Value = $48,000

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

First year (2013) = $40,000 - $5,000 = $35,000

Second year (2014) = $35,000 - $5,000 = $30,000

Third year (2015)= $30,000 - $5,000 = $25,000

Gain = Sale Value - Truck Value (actual) = $30,000 - $25,000 = $5,000