On January 1, 2014, Danville Corporation acquired a machine at a cost of $60,000. The machine's service life was estimated to be ten years and its residual value to be $6,000. The straight-line method was used for depreciation. On January 1, 2019, the machine was no longer useful and was sold for $3,000. For 2019, in regard to this machine, how much of a loss should Danville record?

Question

Quizplus · Accepted Answer

The machine had a cost of $60,000 and a residual value of $6,000, so the depreciable base is $54,000 ($60,000 - $6,000). Since the service life is ten years, the annual depreciation expense is $5,400 ($54,000 ÷ 10). For 2019, there were five years of depreciation, so the accumulated depreciation is $27,000 ($5,400 x 5). When the machine was sold for $3,000, there was a loss of $24,000 ($27,000 - $3,000). Therefore, Danville should record a loss of $24,000 in regard to this machine for 2019, which is option B.

On January 1, 2014, Danville Corporation Acquired a Machine at a Cost