What is the gain recognized on disposal of equipment in the government-wide statements when the asset cost $40,000, accumulated depreciation $30,000, and it was sold for $15,000?

• A. 5,000
• B. 15,000
• C. -5,000
• D. 0

Answer: (C)

When a capital asset is disposed of in government-wide statements, you remove the asset and its accumulated depreciation and recognize a gain or loss equal to the difference between the proceeds and the net book value.

Net book value = cost minus accumulated depreciation = 40,000 − 30,000 = 10,000. Proceeds from the sale = 15,000. Gain = 15,000 − 10,000 = 5,000.

So, the disposal results in a gain of 5,000. The typical journal entries would debit Cash 15,000 and Accumulated Depreciation 30,000, and credit Equipment 40,000 and Gain on Disposal 5,000.