Question

An asset’s book value is $18,000 on December 31, Year 5. Assuming the asset is sold on December 31, Year 5 for $15,000, the company should record: Multiple Choice A loss on sale of $12,000. A gain on sale of $12,000. Neither a gain nor a loss is recognized on this transaction. A gain on sale of $3,000. A loss on sale of $3,000.

Answer 1

Explanation:

When an asset is sold, the company needs to determine whether it has incurred a gain or a loss on the sale. The gain or loss is calculated by comparing the selling price of the asset with its book value.

In this case, the asset's book value is $18,000, and it is sold for $15,000 on December 31, Year 5.

To calculate the gain or loss, subtract the selling price from the book value:

$15,000 - $18,000 = -$3,000

Since the result is negative, it means that the company has incurred a loss on the sale.

Therefore, the correct answer is: A loss on sale of $3,000.

I hope this explanation is helpful. Let me know if you have any further questions!