Liverpool Inc. purchased machinery for $32,000. The machinery was later sold for $18,000. Liverpool had already recorded depreciation of $16,000 associated with this machinery. The fair value of the machinery at the date of sale was $19,000.

A) What is the amount of Liverpool's gain/loss on disposal?

A. $2,000 gainB. $2,000 lossC. $3,000 loss

D. $3,000 gain

E $18,000 gain

Option A,$2000 gain

Explanation:

Upon disposal of asset an, the cost is transferred from asset to disposal by crediting asset account and debiting disposal account.

The accumulated depreciation on the asset is also transferred from accumulated depreciation account to disposal account by debiting accumulated depreciation account and crediting disposal account

Lastly the proceeds from disposal is debit to cash account and credited to disposal account.

The sum of proceeds and accumulated depreciation on the credit side is compared to the cost on the debit side in the disposal account, when credit is more there is a gain on disposal and vice versa.

In this instance, sum of accumulated depreciation and proceeds of $34000 ($18000+$16,000) is more than cost of $32000, hence gain on disposal is $2000 ($34000-$32000)

B. $2,000 loss

Explanation:

The amount recognized for gain / loss on disposal of asset = purchased price - depreciation - sold price

= $32,000 - $16,000 - $18,000

= - $2,000

-> loss of $2,000