Question

We bought a printing press for $750,000. We incurred $50,000 of installation costs, $23,000 in shipping and delivery costs. $5,000 in taxes and $24,000 in setup and testing. We determined that it would make 5,000,000 impressions and would have a salvage value of $45,000. During its first 4 years of operation we produced a. 1 650,000 impressions b. 2 700,000 impressions c. 3 600,000 impressions d. 4 500,000 impressions We decided to get out of this line of business and sold the machine for $375,000. What was the gain(loss) on this transaction?

Answer 1

Total cost of printing press = $750,000 + $50,000 + $23,000 + $5,000 + $24,000 = $852,000

Salvage value = $45,000

Estimated impressions over the useful life of the printing press = 5,000,000

Therefore,

Depreciation per impression = (Cost - Salvage value) / Estimated impressions over the useful life of the printing press

                                              = ($852,000 - $45,000) / 5,000,000

                                              = $0.1614

Now,

Total impressions during the first four years = 650,000 + 700,000 + 600,000 + 500,000 = 2,450,000

Therefore,

Accumulated depreciation for the first four years = 2,450,000 x $0.1614 = $395,430

And,

Book value of the printing press = Cost - Accumulated depreciartion = $852,000 - $395,430 = $456,570

Now,

The machine was sold for $375,000

Therefore,

Loss on sale of the machine = Book value - Sellig price = $456,570 - $375,000 = $81,570

Thus,

Loss on the transaction is $81,570.