The Old Fix-It is a company specializing in the restoration of old homes. To showcase its work, the company purchased an old Victorian home in downtown Pittsburg, Kansas on January 2, 2006. The original home was purchased for $125,000. A new heating and air-conditioning system was added for $30,000. The house was completely rewired and re-plumbed at a cost of $50,000. Custom cabinets were added, and the floors and trim were refurbished to their original condition, at a cost of $75,000.

The project was such a success, that Old Fix-It decided on January 2, 2010, to sell the home for $175,000. At the time of sale, the accumulated depreciation account balance was $74,667. Mark Gibson, the president of Old Fix-It, decided that the $50,000 gain over purchase price was appropriate, and so he agreed to sell the showcase house. Only afterward did he learn that Old Fix-It had a loss of almost $30,000 on the sale. Mark does not believe that a loss is 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 four years. How in the world can we have a loss?"

Required: (be sure to show computations supporting your explanations)

Explain why Mr. Gibson thought he had a $50,000 profit.

Explain why the company reported approximately a $30,000 loss.