Wild Company purchased a machine on January 1, 2015 for $12,000. The company estimates that the machine will have a $1,000 salvage value at the end of its 10 year useful life, (assume straight line depreciation). On September 30, 2019 the machine was sold for a gain of $875.
What must have been the selling price of the machine?

Question

Quizplus · Accepted Answer

The annual depreciation expense is calculated as (Cost - Salvage Value) / Useful Life = ($12,000 - $1,000) / 10 = $1,100 per year. By September 30, 2019, the machine has been depreciated for 4 years and 9 months (4.75 years). Total depreciation = $1,100 * 4.75 = $5,225. The book value on September 30, 2019 = $12,000 - $5,225 = $6,775. The selling price = Book Value + Gain = $6,775 + $875 = $7,650.

Wild Company Purchased a Machine on January 1, 2015 for $12,000