An asset was acquired on August 1, 2021, for $22,000 with an estimated five-year life and $2,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on April 30, 2023, for $13,000. Partial-year depreciation is calculated based on the number of months the asset is in service.

The answer is ($2,000). Loss of $2,000

Explanation:

Straight line depreciation = (cost of the asset - residual/salvage value) ÷ number of years

The number of years is 5 and changing this to months will be 60months(5 x 12months)

So we have:

($22,000 - $2,000) ÷ 60 months

$333.33

August 1, 2021 through April 30 2023 is 21 months

So accumulated depreciation is:

$333.33 x 21 months

= $7,000.

Therefore the book value on April 30,2023 is:

$22,000 - $7,000

=$15,000

On this date, the asset was sold for $13,000

Therefore, we have a loss of $2,000($13,000 - $15,000). The sale price is less than the carrying amount (book value) of the asset.

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