The Suvari Company purchased a machine on November 1, 2003, for $148,000. At the time of acquisition, the machine was estimated to have a useful life of 10 years and a salvage value of $4,000. Suvari recorded monthly depreciation using the straight-line method. On July 1, 2012, the machine was sold for $13,000. What should be the loss recognized from the sale of the machine?

Question

Quizplus · Accepted Answer

- Annual depreciation = (148,000 - 4,000) / 10 = $14,400
- Monthly depreciation = $14,400 / 12 = $1,200
- Depreciation for the period from November 1, 2003, to June 30, 2012 = $1,200 x 103 months = $123,600
- Book value of the machine on July 1, 2012, (before the sale) = $148,000 - $123,600 = $24,400
- Loss on sale = $24,400 (book value) - $13,000 (sale price) = $11,400
Since the loss on sale is $11,400, which is greater than the salvage value of $4,000, the company should recognize the entire loss of $11,400. Therefore, the correct choice is C, $10,200 (which is not an option).

The Suvari Company Purchased a Machine on November 1, 2003