Florida General Contractor Practice Exam

What is the loss/gain on sale of equipment valued at 25,000 with a useful life of 10 years sold for 9,000 after 5 years?

1. Loss of 5,000

2. Gain of 1,500

3. Loss of 4,500

4. Gain of 3,000

The correct answer is: Loss of 5,000

To determine the loss or gain on the sale of the equipment, we first need to calculate the book value of the equipment at the time of sale. The original value of the equipment is $25,000, and it has a useful life of 10 years. We can calculate the annual depreciation using the straight-line method, which divides the initial cost by the useful life. Annual depreciation is calculated as follows: \[ \text{Annual Depreciation} = \frac{\text{Original Value}}{\text{Useful Life}} = \frac{25,000}{10} = 2,500 \text{ per year} \] Since the equipment is sold after 5 years, we multiply the annual depreciation by 5: \[ \text{Total Depreciation after 5 years} = 2,500 \times 5 = 12,500 \] Next, we find the book value at the time of sale by subtracting the total depreciation from the original value: \[ \text{Book Value} = \text{Original Value} - \text{Total Depreciation} = 25,000 - 12,500 = 12,500 \] Now, we compare