The Fisher Company purchased a machine on September 1, 2011, for $80,000. At the time of acquisition, the machine was estimated to have a useful life of eight years and an estimated salvage of $8,000. Fisher has recorded monthly depreciation using the straight-line method. On May 1, 2013, the machine was sold for $50,000. What should be the loss recognized from the sale of the machine? a. $15,000 b. $2,500 c. $5,000 d. $7,500
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
. The Fisher Company purchased a machine on September 1, 2011, for $80,000. At the time of acquisition, the machine was estimated to have a useful life of eight years and an estimated salvage of $8,000. Fisher has recorded monthly
a. $15,000
b. $2,500
c. $5,000
d. $7,500
Example:
The Fisher Company purchased a machine on October 1, 2007, for $80,000. At the time of acquisition, the machine was estimated to have a useful life of five years and an estimated salvage of $5,000. Fisher has recorded monthly depreciation using the straight-line method. On April 1, 2009, 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
Annual depreciation expense = (80,000 – 5,000) / 5 = 15,000
Monthly depreciation expense = 15,000 / 12 = 1,250
Accumulated depreciation = (1250 * 3) + 15,000 + (1250 *3) = 22,500
BV = 80,000 – 22,500 = 57,500
Loss = BV of the machine – selling price = 57,500 – 50,000 = 7,500
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
