The Chisholm Company purchased a machine on November 1,2005,for $148,000.At the time of acquisition,the machine was estimated to have a useful life of ten years and an estimated salvage value of $4,000.Chisholm has recorded monthly depreciation using the straight-line method.On July 1,2014,the machine was sold for $13,000.What should be the loss recognized from the sale of the machine?
A) $4,000
B) $5,000
C) $10,200
D) $13,000

Question

Quizplus · Accepted Answer

To calculate the loss recognized from the sale of the machine, we need to compare the machine's book value (carrying value) to the sale price. The book value of the machine on July 1, 2014, can be calculated as follows:

Total depreciation expense = ($148,000 - $4,000) / 10 years = $14,400 per year
Depreciation expense for 9.5 years (from Nov 1, 2005, to July 1, 2014) = $14,400 x 9.5 = $136,800
Book value = Cost - accumulated depreciation = $148,000 - $136,800 = $11,200

Thus, the loss recognized from the sale of the machine is: Sale price ($13,000) - Book value ($11,200) = $1,800. Therefore, the best choice is C ($10,200).

The Chisholm Company Purchased a Machine on November 1,2005,for $148,000