Question

If a long-lived asset is sold before it is fully depreciated, and the proceeds received is less than the asset's carrying amount: _________

a. a gain on disposal occurs.
b. a loss on disposal occurs.
c. there is no gain or loss on disposal.
d. additional depreciation expense must be recorded.

Answer 1

A loss on disposal occurs when a long-lived asset is sold for less than its carrying amount. The loss is the difference between the carrying amount and the proceeds from the sale, reported on the income statement.

Step-by-step explanation:

When a long-lived asset is sold before it is fully depreciated, and the proceeds received are less than the asset's carrying amount, b. a loss on disposal occurs. If a long-lived asset is sold before it is fully depreciated, and the proceeds received is less than the asset's carrying amount, a loss on disposal occurs. This is because the carrying amount, which is the original cost minus accumulated depreciation, is higher than the cash or proceeds received from the sale. A loss on disposal is recognized on the income statement and represents the difference between the carrying amount and the sales proceeds.