Asked by Tatiana Cortes on Jun 17, 2024
Verified
The Rothchild Company purchased a machine on October 1, 2010, for $80, 000.At the time of acquisition, the machine was estimated to have a useful life of five years and an estimated salvage value of $5, 000.Rothchild has recorded monthly depreciation using the straight-line method.On April 1, 2012, the machine was sold for $50, 000.What should be the loss recognized from the sale of the machine?
A) $ 0
B) $2, 500
C) $5, 000
D) $7, 500
Straight-Line Method
A method of calculating depreciation of an asset which assumes the asset will lose an equal amount of value each year over its useful life.
Salvage Value
The estimated residual value of an asset at the end of its useful life, reflecting the amount it could be sold for or its disposal value.
Useful Life
The expected duration of time over which an asset is anticipated to be economically usable by one or more users.
- Acquire the skill to determine and discern earnings or losses upon exchanging non-cash assets.
Verified Answer
= ($80,000 - $5,000) / (5 x 12) = $1,250
As the machine was sold on April 1, 2012, it was in use for 18 months [from October 1, 2010, to March 31, 2012].
Total depreciation charged = 18 x $1,250 = $22,500
Book value of the machine on April 1, 2012, = Cost - Depreciation charged = $80,000 - $22,500 = $57,500
Loss on sale = Book value - Sales price = $57,500 - $50,000 = $7,500
Learning Objectives
- Acquire the skill to determine and discern earnings or losses upon exchanging non-cash assets.
Related questions
Rogaine Company Exchanged Inventory Items That Cost $47, 000 and ...
Robards Services Exchanged an Asset with a Cost of $24 ...
Renault Marina Exchanged a Boat with a Cost of $80 ...
A Company's Old Machine That Cost $40,000 and Had Accumulated ...
When Firms Dispose of a Long-Lived Asset Before the End ...