Calculate depreciation under alternative methods and account for disposal of an asset.( LO 2,5)
Perfect Heating and Air purchased a truck 3 years ago for $50,000. The company expects the truck to have a useful life of 5 years with no salvage value. The company has taken three full years of depreciation expense.
Required
a. Assume that the company uses straight-line depreciation. If the truck is sold for $25,000, will there be a gain or loss on the sale? If so, how much? How will the sale affect the financial statements for the year?
b. Assume that the company uses double-declining balance depreciation. If the truck is sold for $15,000, will there be a gain or loss on the sale? If so, how much? How will the sale affect the financial statements for the year?
c. Assume the company uses straight-line depreciation and sells the truck for $20,000. Would there be a gain or loss on the sale? How would that change if the company had been using double-declining balance depreciation?