Question

On December 31, 2017, a company sells a plant asset that originally cost $375,000, receiving cash of $125,000. The accumulated depreciation account had a balance of $150,000 after the current year's depreciation of $37,500 had been recorded. The company should recognize a: ___________?

Answer 1

$100,000 loss on disposal

Step-by-step explanation:

The current value (V) of the plant asset is the original $375,000 subtracted by the accumulated depreciation until the end of the current year, $150,000:

`V=\$375,000 -\$150,000 =\$225,000`

The gain or loss from this transaction is measured by the amount received in cash subtracted by the current value of the plant asset:

`\$125,000-\$225,000 = -\$100,000`

Therefore, the company should recognize a $100,000 loss on disposal.