Bowie company uses a calendar year and the straight line depreciation method. on december 31, 2018, after adjusting entries were posted, bowie company sold a machine which was originally purchased on january 1, 2015. the historical cost was $22,000, the salvage value assumed was $1,000 and the original estimated life was five years.. it was sold for $3,800 cash. using this information, how much should be recorded on december 31 for the gain or (loss)?

$1,400 should be recorded on December 31 for the Loss

Explanation:

Bowie Company uses straight-line depreciation method, Depreciation Expense each year is calculated by following formula:  

Annual Depreciation Expense = (Cost of machine − Salvage Value)/Useful Life = ($22,000-$1,000)/5 = $4,200

The machine was originally purchased on January 1, 2015.

Depreciation Expense for 2015 = Depreciation Expense for 2016 = Depreciation Expense for 2017 = Depreciation Expense for 2018 = $4,200

Accumulated depreciation  at December 31, 2018 = $4,200 x 4 = $16,800

Carrying amount of the machine = $22,000 - $16,800 = $5,200

Sales price - Carrying amount of the machine = $3,800 - $5,200 = -$1,400<0

The company recorded loss on the sale $1,400

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