Loli Ice Cream Services purchased an ice-cream machine on January 1, 2005, for $44,000. At the time of purchase, the machine was estimated to have a useful life of 10 years and a salvage value of $2,000. The company records depreciation on a straight-line basis. On April 1, 2010, the machine was sold for $20,000. What gain or loss should be recognized from the sale of the machine?

Question

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The machine's annual depreciation is ($44,000 - $2,000) / 10 = $4,200. By April 1, 2010, 5.25 years of depreciation have occurred, totaling $22,050. The book value at the time of sale is $44,000 - $22,050 = $21,950. Selling it for $20,000 results in a loss of $1,950.

Loli Ice Cream Services Purchased an Ice-Cream Machine on January