Question

On January 1, 2018, Dunbar Echo Co. sells a machine for $23,600. The machine was originally purchased on January 1, 2016 for $41,200. The machine was estimated to have a useful life of 5 years and a residual value of $0. Dunbar Echo uses straight-line depreciation. In recording this transaction:

Answer 1

Answer:

The answer is

Dunbar Echo Co will report a loss of $1,120

Explanation:

Straight-line depreciation = (cost of asset - salvage/residual value) ÷ number of useful life

Cost of asset - $41,200

Salvage/residual value - $0

Number of useful life - 5 years

$41,200/5

= $8,240

January 1, 2016 through January 1, 2018 is two years. So accumulated depreciation = $16,480($8,240 x 2)

Carrying value of the asset as at January 1, 2018 is

$41,200 - $16,480

=$24,720.

On this date, the asset was sold for $23,600.

Therefore, Dunbar Echo Co made a loss of $1,120($23,600 - $24,720)