Answer:
Correct option is (B)
Explanation:
Given:
Purchase price as on January, 1, 2016 is $48,000. Salvage value is $8,000 and estimated life is 8 years.
Depreciation method used is straight line method. Calculation of annual depreciation:
[tex]Annual\ depreciation=\frac{Purchase\ price - salvage\ value}{estimated\ life}[/tex]
[tex]Annual\ depreciation=\frac{48,000 - 8,000}{8}[/tex]
= $5,000
Value of truck as on December 31,2017 = $48,000 - Depreciation of two years ($5,000×2)
=$48,000 - $10,000
=$38,000
Book value of truck as on 31, December 2017 is $38,000 and selling price is $43,000, so there is gain on sales which is computed as shown below:
Gain on sale = Selling price - book value
= 43,000 - 38,000
= $5,000
