The John Company purchased a machine on November 1, 2002 for $148,000. At the ti

Question

The John Company purchased a machine on November 1, 2002 for $148,000. At the time of acquisition, the machine was estimated to have a useful life of 10 years and an estimated salvage value of $4,000. John has recorded monthly depreciation using the straight-line method. On July 1, 2011 the machine was sold for $13,000. What should be the loss recognized on the sale of the machine?

A. $4,000
B. $5,000
C. $10,200
D. $13,000

I believe the answer is C. $10,200 - but that would mean I recorded depreciation for the month of July 2011. Is this correct?

Explanation / Answer

Depreciation from Nov 1, 2002 to Oct 31, 2010 would have been 8 years. Depreciation from Nov 2010 though Jun 2011 would have been another 8 months. So 12*8 +8 months= 104 would have resulted in depreciation of 104*(148,000-4,000)/120 = 124,800. Book value of the system would have been 148,000- 124,800= 23,200 so a sales price of 13,000 would have resulted in a loss of 10,200. So C is in fact correct, but does not include Jul 2011 depreciation.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.