Disposal of an Asset J. Electronics purchased a warehouse on January 1, 1992, for $950,000. At the time of purchase, J. Electronics anticipated the warehouse would be used to facilitate its expanded product line. The warehouse is being depreciated over 20 years and is expected to have a resale value of $50,000 at the end of that period. The company uses straight-line depreciation. On January 1, 2002, J. Electronics concluded that the warehouse would no longer be used and should be sold for its book value. At the end of 2002, the warehouse still had not been sold and its net realizable value was estimated to be only $300,000.

a. Compute the book value of the warehouse at January 1, 2002.

b. What amount of depreciation should be recorded in 2002?

c. If during 2003 J. Electronics sells the warehouse for

$400,000, what accounts would be affected and by what amount?

d. During 2002, the financial vice president expressed concern that, if J. Electronics put the building up for sale, the company might have to report a loss for the year. Not wanting to reduce 2002 earnings any further, the vice president suggested continuing to treat the warehouse as an operating asset. How would the financial statements be different if the warehouse were treated as an operating asset during 2002?
From a stockholder’s perspective, do you believe the treatment makes any difference? Explain.