Gains Are Good, Losses Are Bad-Right?
Response to the following problem:
When a long-term asset is sold for more than its book value, we record a gain. When a longterm asset is sold for less than its book value, we record a loss.
Your assignment is to write a two-page memo addressing the following questions:
1. What factors affect a long-term asset's book value?
2. What factors affect a long-term asset's fair value?
3. Should financial statement users expect an asset's book value to equal its fair value?
4. In the case of an asset sold for a loss, if we knew when we purchased the asset what we know at the point of sale, how would depreciation expense have differed if our objective was to ensure that book value equaled fair value when the asset was sold?
5. Is recognizing a loss on the sale of a long-term asset a bad thing? Is a gain good?