Book Printing Company bought a machine four years ago for $60,000. The company expects the machine to

Question:

Book Printing Company bought a machine four years ago for $60,000. The company expects the machine to have a useful life of five years with no salvage value. The company has taken four full years of depreciation expense.

Requirements

1. Assume that the company uses straight-line depreciation. If the machine is sold for $11,000, will there be a gain or loss on the sale? If so, how much will that gain or loss be? How will the sale affect the financial statements for the year?

2. Assume that the company uses double-declining balance depreciation. If the machine is sold for $9,000, will there be a gain or loss on the sale? If so, how much will that gain or loss be? How will the sale affect the financial statements for the year?

3. Assume the company uses straight-line depreciation and sells the machine for $13,000. Would there be a gain or loss on the sale? How would that change if the company had been using double-declining balance depreciation?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...