Question

Butte sold a machine to a machine dealer for $51,800. Butte bought the machine for $53,200 several years ago and has claimed $11,600 of depreciation expense on the machine. What is the amount and character of Butte's gain or loss?

a) $1,600 gain
b) $1,600 loss
c) $11,600 gain
d) $11,600 loss

Answer 1

The machine sold by Butte has a gain of $10,200.

Step-by-step explanation:

To determine Butte's gain or loss, we need to calculate the net book value of the machine. The net book value is the original cost of the machine minus the accumulated depreciation. The original cost of the machine is $53,200 and the accumulated depreciation is $11,600. Therefore, the net book value is $53,200 - $11,600 = $41,600.

Since Butte sold the machine for $51,800, we can calculate the gain or loss by subtracting the net book value from the selling price. $51,800 - $41,600 = $10,200. Since the selling price is higher than the net book value, Butte has a gain of $10,200.

The correct answer is d) $10,200 gain.