Question

QUESTION 2 Partaily correct 2.00 points out of 8.00P Flag question Computing Depreciation, Net Book Value, and Gain or Loss on Asset Sale Lynch Company owns and operates a delivery van that originally cost $51,200. Lynch has recorded straight-line depreciation on the van for four years, calculated assuming a $5,000 expected salvage value at the end of its estimated six-year useful life. Depreciation was last recorded at the end of the fourth year, at which time Lynch disposes of this van. a. Compute the net book value of the van on the disposal date. s 22,066.67 b. Compute the gain or loss on sale of the van if the disposal proceeds are: Use a negative sign with your answer if the sale results in a loss. 1. A cash amount equal to the van's net book value. $ 0 2. $23,000 cash. $ 0 3. $19,000 cash. $ 0 20 Check You tlave correctly selected 1,

Answer 1

Solution:

Company is using straight line depreciation method to record Depreciation Expense on the Van.

Annual Depreciation Expenses as per straight line method = (Cost of Asset – Salvage Value) / Estimated Useful life

= ($51,200 – 5,000) / 6

= $7,700

Part a

Net Book Value of the Van on the disposal date (i.e. after recording depreciation of 4rth year) = Cost of Van – Accumulated Depreciation for 4 years

= $51,200 – (Annual Depreciation $7,700 * 4 years)

= $51,200 - $30,800

= $20,400

Part b(1) ---

Sales Proceeds = Net Book Value of the Van = $20,400

Gain or Loss on Sale of the Van = Sales Proceeds $20,400 – Net Book Value of the Van $20,400 = 0

Part b(2) ---

Gain or Loss on Sale of the Van = Sales Proceeds $23,000 – Net Book Value of the Van $20,400 = $2,600 Gain

Part b(3) ---

Sale Proceeds = $19,000

Gain or Loss on Sale of the Van = Sales Proceeds $19,000 – Net Book Value of the Van $20,400 = -$1,400 Loss

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