Kovacic Company Purchased a Computer That Cost $10,000

question 46

Multiple Choice

Kovacic Company purchased a computer that cost $10,000. It had an estimated useful life of five years and residual value of $0. The computer was depreciated by the straight-line method and was sold at the end of the fourth year of use for $3,000 cash. What should Kovacic record?

• A) A gain of $1,000.
• B) A loss of $1,000.
• C) Neither a gain nor a loss-the computer was sold at its book value.
• D) Neither a gain nor a loss-the gain that occurred in this case would not be recognized.

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Definitions:

Credit for Returns

A reduction in sales revenue that occurs when customers return previously purchased products.

Discount Period

The timeframe during which a discount is available or the period between the receipt of a bill and its payment due date when a discount may be taken.

Full Settlement

A financial arrangement where a debtor pays a lump sum that is less than the total amount owed to fully settle the outstanding debt.

Perpetual Inventory System

An inventory accounting system that records purchases and sales of merchandise immediately through the use of computerized point-of-sale systems and enterprise asset management software.