Answer:
b. $2,000 gain.
Explanation:
Data Given
Cost = $64,000
Useful Life = 6 years.
Salvage Value = $10,000
Used in Business = Year 5 - Year 1 = 4 years.
Selling Price = $30,000
Solution
The gain or loss on disposal of limousine is calculated by comparing carrying value, also known as book value, and selling price.
⇒ Gain / Loss = Carrying Value - Selling Price
where:
Carrying Value = Cost - Accumulated Depreciation
So, first of all we have to calculate the Carrying Value at the end of 4th year, or we can also say that at the start of 5th Year.
⇒ Carrying Value = 64,000 - { [ (64,000 - 10,000) / 6] * 4 } = $28,000
To calculate gain or loss, compare this calculate carrying value with the sale proceeds.
⇒ Gain or Loss = 28,000 - 30,000 = $2,000 of Gain because the company sold a limousine worth of $28,000 for $30,000.
