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Sheridan Company purchased a new machine on May 1, 2012 for $560400. At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage value of $23400. The company has recorded monthly depreciation using the straight-line method. On March 1, 2021, the machine was sold for $68400. What should be the loss recognized from the sale of the machine?

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Answer:

$17,650

Explanation:

From May 1  2012 to the end of February 2021,the machine would have been depreciated for 8 years 10 months which effectively translates into 106 months.

annual depreciation charge=cost-residual value/useful life

annual depreciation charge=($560,400-$23,400)/10=$53,700

monthly depreciation=$53,700/12=$4475

Total depreciation to date=$4475 *106=$ 474,350.00  

Asset book value=$560,400-$ 474,350=$ 86,050.00  

The asset was sold for $68,400

loss recognized =book value minus cash proceeds=$86,050-$68,400=$17,650

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