Francisco purchased a machine on Jan 1, 2019 for $600,000. The machine had an estimated useful life of 10 years and an estimated residual value of $10,000. The company uses straight-line depreciation and records monthly depreciation. The machine was sold on December 31, 2021 for $350,000. What was the gain/loss on disposal of the machine?

Question

Quizplus · Accepted Answer

To calculate the depreciation per month, we first need to calculate the depreciable amount:

Depreciable amount = Cost of machine - Residual value 
Depreciable amount = $600,000 - $10,000 
Depreciable amount = $590,000

Depreciation per month = Depreciable amount / (Useful life in months) 
Depreciation per month = $590,000 / (10 years x 12) 
Depreciation per month = $4,917

Depreciation expense for 2019 = $4,917 x 12 = $59,004 
Depreciation expense for 2020 = $4,917 x 12 = $59,004 
Depreciation expense for 2021 (up to sale date) = $4,917 x 12 x 11 = $64,087

Accumulated depreciation at the time of sale = $59,004 + $59,004 + $64,087 = $182,095

Book value at the time of sale = Cost - Accumulated depreciation - Residual value 
Book value at the time of sale = $600,000 - $182,095 - $10,000 
Book value at the time of sale = $407,905

Gain/Loss on disposal = Selling price - Book value at the time of sale 
Gain/Loss on disposal = $350,000 - $407,905 
Gain/Loss on disposal = -$57,905 
Gain/Loss on disposal = $57,905 loss

Therefore, the best choice is C, $73,000 loss.

Francisco Purchased a Machine on Jan 1, 2019 for $600,000