Orton Corporation, Which Has a Calendar Year Accounting Period, Purchased

question 73

Multiple Choice

Orton Corporation, which has a calendar year accounting period, purchased a new machine for $40,000 on April 1, 2006.At that time Orton expected to use the machine for nine years and then sell it for $4,000.The machine was sold for $22,000 on Sept.30, 2011.Assuming straight-line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the time of sale would be

• A)$4,000.
• B)$3,000.
• C)$2,000.
• D)$0.

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Definitions:

Historical Cost

An accounting method where assets are listed and valued on the balance sheet at their original purchase price.

Current Cost

Current cost refers to the cost of purchasing an asset or replacing a liability at current market rates, as opposed to historical purchase prices.