Perfect Auto Rentals sold one of its cars on January 1, 2011. Perfect had acquired the car on January 1, 2009, for $23,400. At acquisition Perfect assumed that the car would have an estimated life of three years and a residual value of $3,000. Assume that Perfect has recorded straight-line depreciation expense for 2009 and 2010.
1. Prepare the journal entry to record the sale of the car assuming the car sold for (a) $9,800 cash, (b) $7,500 cash, and (c) $11,500 cash.
2. How should the gain or loss on the disposition (if any) be reported on the income statement?