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In: Accounting

10. APEX Company purchased a machine on January 1, 2017, for $60,000. The machine was estimated...

10. APEX Company purchased a machine on January 1, 2017, for $60,000. The machine was estimated to have a service life of ten years with an estimated residual value of $6,000. APEX sold the machine on January 1, 2021 for $12,000. APEX uses the double declining method for depreciation. Using this information, how much is the gain or (loss) for the equipment sale entry made on January 1, 2021. Enter a loss as a negative number.

Solutions

Expert Solution

Cost of machine = $ 60,000.

Useful life = 10 years.

Using double declining balance,

Depreciation for 2017 = (60,000/10) x 2

Depreciation for 2017 = $ 12,000.

Book value as on January 1 of 2018 = 60,000 - 12,000

Book value as on January 1 of 2018 = $ 48,000

Depreciation for 2018 = ( 48,000/10) x 2

Depreciation for 2018 = $ 9,600.

Book value as on January 2019 = 48,000 - 9,600

Book value as on January 2019 = $ 38,400

Depreciation for 2019 = ( 38,400/10) x 2

Depreciation for 2019 = $ 7,680.

Book value as on January 2020 = 38,400 - 7,680

Book value as in January 2020 = $ 30,720

Depreciation for 2020 = ( 30,720/10) x 2

Depreciation for 2020 = $ 6,144

Total accumulated depreciation = 12,000 + 9,600 + 7,680 + 6,144

Accumulated depreciation = $ 35,424.

Book value on January 1 of 2021 = Cost - accumulated depreciation.

Book value on January 1 of 2021 = 60,000 - 35,424

Book value on January 1 of 2021 = $ 24,576

So the book value having $ 24,576 is sold for $ 12,000 which means that there is a loss on sale of machine.

Loss on sale = 24,576 - 12,000

Loss on sale = - 12,576

The journal entry will be,

Date Accounts Debit Credit
January 1 2021 Cash ac $ 12,000
Accumulated depreciation $ 35,424
Loss on sale of asset $ 12,576
To Machine ac $ 60,000

Hence, - $ 12,576 is the loss on sale of asset.

SUMMARY:

Here, the asset having book value on sale date is greater than the sale proceeds which means that the machine is sold for loss.

Loss amount = - 12,576.

Hence, - 12,576 is the correct answer.

ekkarill92 answered 2 years ago
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