Butte sold a machine to a machine dealer for $50,200. Butte bought the machine for $54,800 several years ago and has claimed $12,400 of depreciation expense on the machine. What is the amount and character of Butte's gain or loss?

Butte's gain $7,800

Explanation:

To recognize gain or loss on disposal:

First, Butte calculates the carrying amount of the asset by using the original cost of the machine, minus all accumulated depreciation and any accumulated impairment charges.

Then, subtract this carrying amount from the sale price of the machine. If the remainder is positive, it is a gain and if the remainder is negative, it is a loss.

The carrying amount of the machine = $54,800 - $12,400 = $42,400

Sales price - The carrying amount of the machine = $50,200 - $42,400 = $7,800 >0

Butte recognizes gain on disposal $7,800