Question

An asset's book value is $19,300 on December 31. Year 5. Assuming the asset is sold on December 31, Year 5 for $13,700, the company should record:

a) A gain on sale of $12,850
b) A loss on sale of $5,600
c) Neither again nor a loss is recognized on this transaction Again on sale of $5,600
d) A loss on sale of $12,850

Answer 1

The company sold an asset at a price lower than its book value, leading to a loss of $5,600, which is recorded as a loss on sale.

Step-by-step explanation:

When an asset is sold, the difference between the asset's book value (what it is currently valued at on the company's books) and the asset's selling price determines whether a gain or loss on sale is recorded.

In this case, the asset's book value is $19,300 and it is sold for $13,700. To calculate the gain or loss, we subtract the selling price from the book value:

Book Value - Selling Price = Gain or Loss
$19,300 - $13,700 = $5,600

As the selling price is less than the book value, a loss is recognized.

Therefore, the correct entry would be:

b) A loss on sale of $5,600.