Whitehouse Air-Conditioning purchased a machine two years ago for $84,000. The company expects the machine to have

Question:

Whitehouse Air-Conditioning purchased a machine two years ago for $84,000. The company expects the machine to have a useful life of eight years and a $4,000 salvage value. Whitehouse Air has taken two full years of depreciation expense.

Requirements

1. Assume that Whitehouse Air uses straight-line depreciation. If the machine is sold for $70,000, will there be a gain or loss on the sale? If so, how much will the gain or loss be? How will it affect Whitehouse Air’s financial statements for the year?

2. Assume that Whitehouse Air uses double-declining balance depreciation. If the machine is sold for $45,000 will there be a gain or loss on the sale? If so, how much will the gain or loss be? How will it affect Whitehouse Air’s financial statements for the year?

3. Assume Whitehouse Air uses double-declining balance depreciation and sells the machine for $60,000. Would there be a gain or loss on the sale? How would that change if Whitehouse Air had been using straight-line 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...