A company sells a plant asset which originally cost $360,000 for $120,000 on December 31, 2021. The Accumulated Depreciation account had a balance of $144,000 after the current year's depreciation of $36,000 had been recorded. The company should recognize aGroup of answer choices$240,000 loss on disposal.$96,000 gain on disposal.$96,000 loss on disposal.$60,000 loss on disposal.
Question
A company sells a plant asset which originally cost 120,000 on December 31, 2021. The Accumulated Depreciation account had a balance of 36,000 had been recorded. The company should recognize aGroup of answer choices96,000 gain on disposal.60,000 loss on disposal.
Solution
Based on the given information, we can calculate the gain or loss on the disposal of the plant asset.
Step 1: Determine the carrying value of the plant asset. Carrying value = Original cost - Accumulated depreciation Carrying value = 144,000 Carrying value = $216,000
Step 2: Compare the selling price with the carrying value. If the selling price is higher than the carrying value, it results in a gain. If the selling price is lower than the carrying value, it results in a loss.
Selling price = $120,000
Since the selling price of 216,000, it results in a loss on disposal.
Step 3: Calculate the loss on disposal. Loss on disposal = Carrying value - Selling price Loss on disposal = 120,000 Loss on disposal = $96,000
Therefore, the company should recognize a $96,000 loss on the disposal of the plant asset.
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