A company sells a plant asset that originally cost $336000 for $93000 on December 31, 2025. The accumulated depreciation account had a balance of $168000 after the current year's depreciation of $28000 had been recorded. The company should recognize a

Question

A company sells a plant asset that originally cost $336000 for $93000 on December 31, 2025. The accumulated depreciation account had a balance of $168000 after the current year's depreciation of $28000 had been recorded. The company should recognize a

BlackTom AI · Accepted Answer

First, restating the problem in my own words helps set up the calculation: A plant asset with original cost of 336,000 is sold for 93,000 on December 31, 2025. After recording current depreciation of 28,000, the accumulated depreciation balance is 168,000, so the asset’s book value at disposal is cost minus accumulated depreciation (336,000 − 168,000).

Option by option analysis:

Option 1: $55,000 gain on disposal. This would require the sale price to exceed book value by 55,000. To check this, compute book value as 336,000 − 168,000 = 168,000. A gain would imply sale proceeds greater than 168,000; but the sale price is 93,000, which is well below book value. Therefore, this option is incorrect because it claims a gain when there is a loss relative to book value.

Option 2: $93,000 loss on disposal. A loss of 93,000 would occur if the book value were 0 and the sale price were 93,000, or if the sale price were 93,000 with a book value of 0. However, the book value is not 0 here; it is 168,000. Therefore, this option is incorrect because it understates the book value and misstates the relation between sale price and book value.

Option 3: $75,000 loss on disposal. This matches the standard calculation: book value (336,000 − 168,000) equals 168,000. The asset is sold for 93,000, so the loss equals book value minus sale price: 168,000 − 93,000 = 75,000. This correctly reflects a loss, not a gain, on disposal.

Option 4: $93,000 gain on disposal. This would imply sale proceeds exceed book value by 93,000, or that book value is 0 with a 93,000 gain. Neither is true here because the book value is 168,000. Hence this option is incorrect as it states a gain when the transaction actually yields a loss relative to book value.

Putting the pieces together, the closest correct interpretation comes from comparing the asset’s book value to the sale price, which reveals a 75,000 shortfall. The reasoning hinges on: (1) calculating book value = cost − accumulated depreciation, (2) comparing sale price to book value, and (3) recognizing that a sale price below book value results in a loss on disposal. The other options either misstate the relation between sale price and book value or mischaracterize the nature of the gain/loss.

A company sells a plant asset that originally cost $336000 for $93000 on December 31, 2025. The accumulated depreciation account had a balance of $168000 after the current year's depreciation of $28000 had been recorded. The company should recognize a

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