On April 30, 2017, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $8,000 residual value.

1. In the year 2023, Tilton Products sells this machinery for $4,500. At the date of sale, the machinery had been depreciated by Tilton Products to its estimated residual value of $8,000. This sale results in:

No gain or loss in either the financial statements or the income tax return.

A $3,500 loss in the financial statements, but no gain or loss in the income tax return.

A $3,500 loss in the financial statements; a $3,500 gain in the income tax return.

A $3,500 loss in both the company's financial statements and its income tax return.

2. Assume that in its financial statements, Tilton Products uses straight-line depreciation and the half-year convention. Depreciation expense recognized on this machinery in 2017 and 2018 will be:

$6,000 in 2017 and $12,000 in 2018.

$5,500 in 2017 and $11,000 in 2018.

$7,500 in 2017 and $11,000 in 2018.

$5,000 in 2017 and $10,000 in 2018.