On April 30, Year 1, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $4,000 residual value. Tilton uses a calendar year-end for financial reporting.

In Year 7, Tilton Products sells this machinery for $2,200. At the date of sale, the machinery had been depreciated by Tilton Products to its estimated residual value of $4,000. This sale results in:

Multiple Choice

• A $1,800 loss in the financial statements; a $1,800 gain in the income tax return.

• A $1,800 loss in both the company's financial statements and its income tax return.

• A $1,800 loss in the financial statements, but no gain or loss in the income tax return.

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