Ben bought an ice cream machine 2 years ago for $8,000. The depreciation life for ice cream machines is 4 years. Ben uses straight line depreciation and a convention of taking one-half year's depreciation in the first year. Ben just sold his machine to Jerry for $6,000. What will be Ben's Capital Gain/(Loss) on this transaction?

A) $1,000
B) $2,000
C) $5,000
D) ($2,000)

Question

Parker Cahill · Accepted Answer

Final Answer : A, Explanation :  The machine depreciates $2,000 per year ($8,000/4 years). After 2 years, it has depreciated $3,000 (1/2 of $2,000 in the first year and $2,000 in the second year). The book value is $5,000 ($8,000 - $3,000). Selling it for $6,000 results in a $1,000 gain ($6,000 - $5,000).

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