Bob bought a new car on January 20 2016 The car cost 35000 h

Bob bought a new car on January 20, 2016. The car cost 35,000, had a useful life of five years, and a salvage value of 5,000. Bob depreciates assets using straight line method. Bob sold the car to carmax (a used-car dealer) on January 20, 2018 for 16,000. What is the gain or loss incurred by Bob when he sells the car? a.) Loss of $5,000 b.) Gain of $11,000 c.) Loss of $7,000 d.) Loss of $14,000 e.) Loss of $19,000

Solution

Ans) Loss of $7000

Depreciation under straight line method = cost - scrap value / estimated useful years

= 35000 - 5000 / 5

= 6000

Depreciation for two years = 6000 X 2 =12000

Sale price of machine = 16000

Less: Book value of machine (35000 -12000) =(23000)

Loss on sale of machine (7000)