A company sold equipment that originally cost $180,000 for $144,000 cash. The accumulated depreciation on the equipment was $36,000. The company should recognize a:Multiple Choice$36,000 loss.$18,000 loss.$144,000 gain.$18,000 gain.$0 gain or loss.
Question
A company sold equipment that originally cost 144,000 cash. The accumulated depreciation on the equipment was 36,000 loss.144,000 gain.0 gain or loss.
Solution
To answer this question, we need to understand how to calculate the gain or loss on the sale of an asset. The formula is:
Gain or Loss = Selling Price - Book Value
The book value of an asset is its original cost minus accumulated depreciation. In this case, the original cost of the equipment is 36,000. So, the book value of the equipment is:
Book Value = Original Cost - Accumulated Depreciation Book Value = 36,000 Book Value = $144,000
The equipment was sold for $144,000, which is exactly the same as its book value. Therefore, the gain or loss on the sale of the equipment is:
Gain or Loss = Selling Price - Book Value Gain or Loss = 144,000 Gain or Loss = $0
So, the company should recognize a $0 gain or loss.
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