On january 1, 2016, jacob inc. purchased a commercial truck for $48,000 and uses the straight-line depreciation method. the truck has a useful life of eight years and an estimated residual value of $8,000. on december 31, 2017, jacob inc. sold the truck for $43,000. what amount of gain or loss should jacob inc. record on december 31, 2017?
a. gain, $22,000.
b. gain, $5,000.
c. loss, $3,000.
d. loss, $18,000.

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:

                                          = $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

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