Disposal of Tangible Capital Asset}

Perfect Auto Rentals sold one of its cars on January 1, 2018. Perfect had acquired the car on January 1, 2016, for \(\$ 23,400\). At acquisition Perfect assumed that the car would have an estimated life of three years and an estimated residual value of \(\$ 3,000\). Assume that Perfect has recorded straight-line depreciation expense for 2016 and 2017.

\section*{Required:}

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 statement of earnings?

\section*{Exercise