The Rothchild Company purchased a machine on October 1, 2010, for $80, 000.At the time of acquisition, the machine was estimated to have a useful life of five years and an estimated salvage value of $5, 000.Rothchild has recorded monthly depreciation using the straight-line method.On April 1, 2012, the machine was sold for $50, 000.What should be the loss recognized from the sale of the machine?

Question

Quizplus · Accepted Answer

Depreciation expense per month = (Cost - Salvage value) / Useful life in months
= ($80,000 - $5,000) / (5 x 12) = $1,250

As the machine was sold on April 1, 2012, it was in use for 18 months [from October 1, 2010, to March 31, 2012].
Total depreciation charged = 18 x $1,250 = $22,500

Book value of the machine on April 1, 2012, = Cost - Depreciation charged = $80,000 - $22,500 = $57,500
Loss on sale = Book value - Sales price = $57,500 - $50,000 = $7,500

The Rothchild Company Purchased a Machine on October 1, 2010