On January 1,2016,Horton Inc.sells a machine for $23,000.The machine was originally purchased on January 1,2014 for $40,000.The machine was estimated to have a useful life of 5 years and a residual value of $0.Horton uses straight-line depreciation.In recording this transaction:
A) a loss of $1,000 would be recorded.
B) a gain of $1,000 would be recorded.
C) a loss of $17,000 would be recorded.
D) a gain of $23,000 would be recorded.

Question

Quizplus · Accepted Answer

The book value of the machine at the time of sale is calculated as follows: 
Cost of the machine = $40,000 
Depreciation expense per year = ($40,000 - $0) / 5 years = $8,000 per year 
Accumulated depreciation as of December 31, 2015 = 2 years x $8,000 per year = $16,000 
Book value of the machine = $40,000 - $16,000 = $24,000

Since the proceeds from the sale of the machine ($23,000) are less than the book value ($24,000), Horton Inc. would record a loss of $1,000 ($23,000 - $24,000). Therefore, choice A is the correct answer.