Question

On April 1, 2023, Unicorn Inc. sells machinery for $40,000. The machinery originally cost $155,000 and had an estimated 8-year life with an expected salvage value of $15,000. The accumulated depreciation on the machinery as of April 1, 2023, is $102,000.

What is the gain or loss on the sale of the machinery?
a. Gain of $18,000
b. Loss of $18,000
c. Gain of $36,000
d. Loss of $36,000

Answer 1

The gain or loss on the sale of machinery is calculated by subtracting the sale price from the book value. In this case, it results in a loss of $13,000, which does not match any of the provided multiple-choice options.

Step-by-step explanation:

To determine the gain or loss on the sale of machinery, we need to calculate the machinery's book value at the time of sale and then compare it to the sale price. The book value is the original cost minus the accumulated depreciation. So, the book value equals $155,000 (cost) - $102,000 (accumulated depreciation), which is $53,000. The machinery sold for $40,000, which is less than the book value.

Thus, we have a loss on the sale of the machinery. To find out how much the loss is, subtract the sale price from the book value: $53,000 (book value) - $40,000 (sale price) equals a loss of $13,000.

Therefore, none of the multiple-choice options provided is correct. The correct answer is a loss of $13,000 on the sale of the machinery.