Question

On September 1, 2011, a company purchased a weaving machine for $239,800. The machine has an estimated useful life of 8 years and an estimated residual value of $17,800. Additionally, it is estimated that the machine would produce 740.000 bolts of woven fabric over its useful life. The company ended up selling the machine in 2018 after 1 month of use. The following budgeted and actual activity levels were provided to support your work: Budgeted Bolts Actual Bolts Year Budgeted cumulative actual cumulative 2011 20,000 20,000 35,000 35,000 2012 100,000 120,000 115,000 150,000 2013 100,000 220,000 116,000 266,000 2014 100,000 320,000 119,000 385,000 2015 100,000 420,000 120,000 505,000 2016 85,000 505,000 117,000 622,000 2017 85,000 590,000 112,000 734,000 2018 85,000 675,000 9,000 743,000 2019 65,000 740,000 n.a. total 740,000 743,000 Assume the company uses the units of production method and sells the equipment for $12,750 in 2018 after 1 month of use. Select the answer below that shows the correct gain or loss realized on the disposition. If applicable, round your intermediate calculations to 3 decimals and your final answer to the nearest $1. A a $900 gain. B. a $4.150 loss. C.A $5,050 loss. D. a $972 loss. OE. None of the answer choices provided are correct.

Answer 1

Solution:- Total depreciation amount using production method ={( Cost of machine - Residual value )/Total estimated bolts } X Actual bolts used till 2018 and 1 month

={($239800 - $17800)/740000} X 743000 =$222900

Carrying value of machine =Cost of machine - Depreciation =$239800 - $222900 =$16900

Loss on disposition of machine = Sale proceeds - Carrying value of machine = $12750 - $ 16900 = -$4150 or $4150 Loss

Option B is correct.