Questions: When a company reports a gain on the sale of a depreciable asset, which of the following is always true? Multiple Choice The company sold the asset for more than its book value. The company sold the asset before its service life was over. The company sold the asset for more than its fair value. The company sold the asset for more than it was worth.

When a company reports a gain on the sale of a depreciable asset, which of the following is always true? Multiple Choice The company sold the asset for more than its book value. The company sold the asset before its service life was over. The company sold the asset for more than its fair value. The company sold the asset for more than it was worth.
Transcript text: When a company reports a gain on the sale of a depreciable asset, which of the following is always true? Multiple Choice The company sold the asset for more than its book value. The company sold the asset before its service life was over. The company sold the asset for more than its fair value. The company sold the asset for more than it was worth.
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Solution

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The answer is the first one: The company sold the asset for more than its book value.

Explanation for each option:

  1. The company sold the asset for more than its book value.

    • Correct. A gain on the sale of a depreciable asset occurs when the selling price exceeds the book value (the original cost minus accumulated depreciation) of the asset.

  2. The company sold the asset before its service life was over.

    • Incorrect. The asset could be sold at any point in its service life, whether it is before or after the end of its estimated useful life. The timing of the sale does not necessarily determine whether there is a gain.

  3. The company sold the asset for more than its fair value.

    • Incorrect. The fair value is the estimated market value of the asset. A gain on sale does not require the selling price to exceed the fair value; it only needs to exceed the book value.

  4. The company sold the asset for more than it was worth.

    • Incorrect. "Worth" is a subjective term and can be interpreted in various ways. The gain is specifically related to the book value, not an arbitrary measure of worth.

Summary: A gain on the sale of a depreciable asset always means that the asset was sold for more than its book value.

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