A company sold a machine for $15,000 in cash. The machine originally cost $38,000 and accumulated depreciation was $20,000.

A company sold a machine for $15,000 in cash. The machine originally cost $38,000 and accumulated depreciation was $20,000. What’s the gain or loss on the sale of machinery?

1: $3,000 gain

2: $3,000 loss

3: $15,000 gain

4: $18,000 loss

Answer: 2. $3000 loss.

The machine that the company initially bought cost $38,000. After some time, the machine had accumulated $20,000 of depreciation which brought down its book value in the company to $38,000 -$20, 000=18, 000. The company realized a loss on the sale of machine when it was sold at $15,000 which is less than its book value of $ 18, 000. More specifically, the company incurred a loss of $3000 [18,000 (book value) -$15, 000( sale proceeds)]. So, the company incurred a $3000 loss from selling off its machinery. When an asset is sold in accounting for less than its book value, the loss therefore gets recorded. In this instance, the cash generated from selling was less than the net book value of machine after depreciation accumulation over time which brought about a loss realized on transaction to tune $3000 .