Asset Disposal – MCQ

Practice Question

Intro to Financial Accounting
Long-Lived Assets
Asset Disposal Accounting
MCQs

If a company sells a piece of equipment for $35,000 that originally cost $100,000 and had accumulated depreciation of $80,000, what is the gain or loss on the sale of the asset?

  1. $5,000 loss
  2. $15,000 gain
  3. $20,000 gain
  4. $65,000 gain
Answer +
Correct Answer: B
Explanation +

First, determine the book value of the asset:

\[ \text{Book Value} = \text{Original Cost} - \text{Accumulated Depreciation} = 100{,}000 - 80{,}000 = 20{,}000 \]

Then, calculate the gain or loss:

\[ \text{Gain/Loss} = \text{Sale Price} - \text{Book Value} = 35{,}000 - 20{,}000 = \textbf{15{,}000 Gain} \]

Since the sale price exceeds the book value, the company recognizes a $15,000 gain on disposal. This gain would typically be reported in the income statement under non-operating income.