Cupcake Factory purchased an industrial oven for $8,000. The company expects the oven to have a six-year

Question:

Cupcake Factory purchased an industrial oven for $8,000. The company expects the oven to have a six-year useful life and a salvage value of $500. (Assume straight-line depreciation.)

1. If Cupcake sells the oven after three years for $3,500, would it realize a gain or loss? How much?

2. What would the gain or loss be if the oven were sold for $2,500 after five years?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...