Asked by Kenrick Mendez on Jun 10, 2024
Verified
Exxon Corp. bought an oil rig exactly 6 years ago for $100,000,000. Exxon depreciates oil rigs straight line over 10 years assuming no salvage value. The rig was just sold to British Petroleum for $30,000,000. What Capital Gain/Loss will Exxon report on this transaction?
A) Gain of $30,000,000
B) Gain of $10,000,000
C) Loss of $10,000,000
D) Loss of $30,000,000
Capital Gain/Loss
The profit or loss made from selling an asset for more or less than its purchase price.
Depreciates
The process by which an asset loses value over time, often due to wear and tear, age, or obsolescence, impacting its useful life.
Straight Line
A method of calculating depreciation of an asset which assumes equal annual depreciation over the asset's useful life.
- Recognize expenses that are deductible for tax purposes and compute the gains or losses on capital assets.
Verified Answer
RD
Regine DorvilusJun 14, 2024
Final Answer :
C
Explanation :
Using straight-line depreciation, after 6 years the accumulated depreciation would be:
Depreciation per year = $100,000,000/10 years = $10,000,000 per year
Accumulated Depreciation = $10,000,000 x 6 years = $60,000,000
Book value of the rig = $100,000,000 - $60,000,000 = $40,000,000
Since the rig was sold for $30,000,000, there is a loss of $10,000,000 ($30,000,000 - $40,000,000 = -$10,000,000). Therefore, Exxon will report a capital loss of $10,000,000 on this transaction.
Depreciation per year = $100,000,000/10 years = $10,000,000 per year
Accumulated Depreciation = $10,000,000 x 6 years = $60,000,000
Book value of the rig = $100,000,000 - $60,000,000 = $40,000,000
Since the rig was sold for $30,000,000, there is a loss of $10,000,000 ($30,000,000 - $40,000,000 = -$10,000,000). Therefore, Exxon will report a capital loss of $10,000,000 on this transaction.
Learning Objectives
- Recognize expenses that are deductible for tax purposes and compute the gains or losses on capital assets.
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