Accounting Question

Thank you for the help

(b) Ignore part (a). Revive Corporation is a company specializing in the restoration of old homes. To showcase its work, the company purchased an old Qing Dynasty house in Sai Kung and restored it. The old home was purchased for $12,500,000. A new heating and air-conditioning system was added for $3,000,000. The house was completely rewired and re-plumbed at a cost of $5,000,000. Custom cabinets were added, and the floors and trim were refurbished to their original condition, at a cost of $7,500,000. The project was such a success that, five years after its restoration, an investor offered to purchase the home for $17,500,000. The president of the company, Dan Fong, decided that a modest return was all that was required, and so he agreed to sell. It was only afterward that he was informed that the company had a $1,000,000 loss on the sale. Dan Fong did not believe that a loss was possible. "We sold that house for more than we paid for it," he said. "I know we put some money in it, but we had depreciated it for five years. How in the world can we have a loss?" The restored home had been depreciated using straight-line method, with an estimated useful life of 15 years and residual value of $250,000. Required: Explain to Dan Fong how it would be possible to have a loss of $1,000,000. Suggest how his misunderstanding can be avoided in future