Final answer:
The gain on disposal of Rhoundakona Corporation's asset is $1,250. This was calculated by determining the book value of $23,750 after 3 years of depreciation and subtracting it from the sale price of $25,000.
Step-by-step explanation:
To determine the gain or loss on disposal of an asset by Rhoundakona Corporation, we first need to calculate the amount of depreciation that has been accumulated by the time of the sale. The company uses straight-line depreciation, which is calculated by subtracting the estimated residual value from the cost of the asset and then dividing by the estimated useful life.
Cost of the asset: $35,000
Estimated residual value: $5,000
Useful life: 8 years
Annual Depreciation Expense = ($35,000 - $5,000) / 8 years = $30,000 / 8 years = $3,750 per year
By January 1, 2017, the asset has been in use for 3 full years, so the total accumulated depreciation will be 3 years * $3,750 per year = $11,250. The book value of the asset at the time of sale would be the cost of the asset minus the accumulated depreciation.
Book Value on January 1, 2017 = Cost of the asset - Accumulated Depreciation
Book Value on January 1, 2017 = $35,000 - $11,250 = $23,750
Since the asset was sold for $25,000 and the book value was $23,750, the gain on disposal is the difference between the sale price and the book value.
Gain on Disposal = Sale Price - Book Value
Gain on Disposal = $25,000 - $23,750 = $1,250
Therefore, the gain on disposal of the property is $1,250, which corresponds to option c).