Question

. On January 2, 2017, Hannah Company sold a machine for $1,000 that it had used for several years. The machine cost $12,000 and had accumulated depreciation of $9,000 at the time of sale. What gain or loss will be reported on the income statement for the sale of the machine

Answer 1

Answer: The loss that will be reported in the income statement for the sale of the machine is $2,000.

Explanation: The cost of the machine is $12,000 while the accumulated depreciation is $9,000. This means the net book value (NBV) of the machine is $3,000 ($12,000 - $9,000). To calculate the gain or loss on the sale of the machine, we have to compare the sales proceed to the NBV. If the sales proceed is greater than the NBV, we have a gain. Otherwise, we have a loss by the difference. In this instance, there is a loss on the sale transaction of $2,000 ($1,000 - $3,000).