When an Asset Is Sold, the Gain or Loss on Disposal

question 18

Multiple Choice

When an asset is sold, the gain or loss on disposal is the difference between the:

• A) proceeds of sale and the fair value of the asset.
• B) proceeds of sale and the original cost of the asset.
• C) proceeds of sale and the carrying amount of the asset.
• D) original cost and the accumulated depreciation of the asset.

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Definitions:

Excess Reserves

Excess reserves are the funds that banks hold over and above the required reserve ratio set by the central bank, representing additional liquidity that can be used for lending.

Checkable Deposits

Bank accounts against which checks can be drawn. These include checking accounts, demand deposits, and any other deposit accounts from which checks can be written.

Discount Rate

The interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility.

Required Reserve Ratio

Percentage of deposits that must be held as vault cash and reserve deposits by all depository institutions.