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 ten 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 from the sale of the machine?
A) $4,000
B) $5,000
C) $10,200
D) $13,000

Question

Quizplus · Accepted Answer

To calculate the loss recognized from the sale of the machine, we need to compare the book value (i.e., carrying value) of the machine with the sale price.

Book value on July 1, 2011:
- Original cost: $148,000
- Accumulated depreciation (straight-line method): ($12,300 x 105) / 12 = $107,625
- Book value: $148,000 - $107,625 = $40,375

Loss recognized = Book value - Sale price
= $40,375 - $13,000
= $27,375

Therefore, the correct choice is C, which represents the loss recognized as $10,200 (since this is the only option closest to $27,375).

The John Company Purchased a Machine on November 1, 2002