Asia Company purchased a building on March 1, 1985 at a cost of $4 million. For financial

Question:

Asia Company purchased a building on March 1, 1985 at a cost of $4 million. For financial reporting purposes, the building was being depreciated over 372 months at $10,000 per month. The remaining $28,000 of the cost was the estimated . The building was sold on October 31, 2004 for $7.2 million. An accelerated depreciation method allowed by the tax code was used to record depreciation for the tax return. As of October 31, 2004, the company had recorded $3.3 million of depreciation for tax purposes using an accelerated basis. Determine
(a) The amount of gain or loss that should be reported on the income statement regarding the sale of the building,
(b) The amount of gain or loss that should be reported on the tax return regarding the sale of the building, and
(c) Why a company would use straight-line depreciation for financial reporting purposes and accelerated depreciation for tax purposes.

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...