Question

Computing Depreciation, Net Book Value, and Gain or Loss on Asset Sale Lynch Company owns and operates a delivery van that originally cost $46,400. Lynch has recorded straight-line depreciation on the van for four years, calculated assuming a $5,000 expected salvage value at the end of its estimated six-year useful life. Depreciation was last recorded at the end of the fourth year, at which time Lynch disposes of this van. a. Compute the net book value of the van on the disposal date. $ 0 b. Compute the gain or loss on sale of the van if the disposal proceeds are: Use a negative sign with your answer if the sale results in a loss. A cash amount equal to the van's net book value. $ 0 $22, 500 cash. $ 0 $18, 500 cash. $ 0

Answer 1

$18,800

For sales proceeds equal to net book value,

Gain = $18800 - $18800 = $0

For sale proceeds = $22,500

Gain = $22,500 - $18,800 = $3,700

for sales proceeds = $18,500

Gain = $18,500 - $18,800 = -$300 (Here negative sign depicts the loss).

Step-by-step explanation:

Given:

Original cost delivery van = $46,400

Expected salvage value = $5,000

Useful life = 6 years

Now,

The Depreciation per year =
`\frac{\textup{Cost-salvage value}}{\textup{Useful life}}`

or

The Depreciation per year =
`\frac{\textup{46,400-5,000}}{\textup{6}}`

or

The Depreciation per year = $6,900

Therefore,

The total depreciation after 4 years = 4 × $6,900 = $27,600

a)

Net book value as on disposal date = $46,400 - $27,600 = $18,800

b) Gain on sales = ( Sales - Book value )

For sales proceeds equal to net book value,

Gain = $18800 - $18800 = $0

For sale proceeds = $22,500

Gain = $22,500 - $18,800 = $3,700

for sales proceeds = $18,500

Gain = $18,500 - $18,800 = -$300 (Here negative sign depicts the loss).