An Asset Is Purchased on January 1 for $40,000

question 34

Multiple Choice

An asset is purchased on January 1 for $40,000. It is expected to have a useful life of five years after which it will have an expected salvage value of $5,000. The company uses the straight -line method. If it is sold for $30,000 exactly two years after its purchased, the company will record a:

• A) gain of $6,000.
• B) gain of $4,000.
• C) loss of $4,000.
• D) loss of $6,000.

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Definitions:

Par Value

The nominal or face value of a bond, share, or other financial instrument, as stated by the issuer.

Effective Interest Method

An accounting technique for amortizing bond premium or discount over the life of the bond in a way that reflects a constant interest rate.

Amortization Table

A schedule that details each payment on an amortizing loan (such as a mortgage), including how much of each payment is interest vs. principal and the remaining balance.

Semiannual Interest

Semiannual interest is interest that is calculated and paid twice a year on investments or loans.