Orton Corporation, which has a calendar year accounting period, purchased a new machine for $60,000 on April 1, 2010. At that time Orton expected to use the machine for nine years and then sell it for $6,000. The machine was sold for $33,000 on Sept. 30, 2015. Assuming straight-line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the time of sale would be

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The machine's annual depreciation is ($60,000 - $6,000) / 9 = $6,000. By the time of sale, 5 full years of depreciation have occurred, totaling $30,000. The book value at sale is $60,000 - $30,000 = $30,000. The sale price is $33,000, resulting in a gain of $33,000 - $30,000 = $3,000.

Orton Corporation, Which Has a Calendar Year Accounting Period, Purchased