Question

Ben's Razor Company purchased a machine for $90,000 on January 1, 2016 and depreciated it on a straight-line basis over a 10-year life assuming no salvage value. If the company sells the machine for $24,000 on June 30, 2020, what would be the company's gain or loss from the sale?

Answer 1

The company would have a loss of $25,500 from the sale of the machine.

Step-by-step explanation:

The gain or loss from the sale of the machine can be calculated by comparing the sale price with the book value of the machine. The book value of the machine can be determined by subtracting the accumulated depreciation from the original cost. In this case, the machine has been depreciated over a 10-year life, so the annual depreciation expense is $90,000 / 10 = $9,000.

Since the sale occurs on June 30, 2020, the machine has been used for 4.5 years (from January 1, 2016, to June 30, 2020). The accumulated depreciation is therefore $9,000 * 4.5 = $40,500. The book value of the machine is $90,000 - $40,500 = $49,500.

Comparing the book value of $49,500 with the sale price of $24,000, we can see that the company would have a loss of $49,500 - $24,000 = $25,500 from the sale of the machine.