On January 1, 2011, Horton Inc. sells a machine for $23,000. The machine was originally purchased on January 1, 2009 for $40,000. The machine was estimated to have a useful life of 5 years and a salvage value of
$0) Horton uses straight-line depreciation. In recording this transaction:
A) a loss of $1,000 would be recorded.
B) a gain of $1,000 would be recorded.
C) a loss of $17,000 would be recorded.
D) a gain of $23,000 would be recorded.

Question

Quizplus · Accepted Answer

The book value of the machine at the time of sale is $16,000 ($40,000 cost - 2 years of depreciation at $8,000 per year). Since the machine was sold for $23,000, Horton would record a loss on the sale of $1,000 ($23,000 - $16,000 book value).