Question

Problem 11-3 The following data relate to the Machinery account of Eshkol, Inc. at December 31, 2014. Machinery A B C D Original cost $103,960 $115,260 $180,800 $180,800 Year purchased 2009 2010 2011 2013 Useful life 10 years 15,000 hours 15 years 10 years Salvage value $7,006 $6,780 $11,300 $11,300 Depreciation method Sum-of-the-years'-digits Activity Straight-line Double-declining balance Accum. depr through 2014* $70,512 $79,552 $33,900 $36,160 *In the year an asset is purchased, Eshkol, Inc. does not record any depreciation expense on the asset. In the year an asset is retired or traded in, Eshkol, Inc. takes a full year’s depreciation on the asset. The following transactions occurred during 2015. (a) On May 5, Machine A was sold for $29,380 cash. The company’s bookkeeper recorded this retirement in the following manner in the cash receipts journal. Cash 29,380     Machinery (Machine A) 29,380 (b) On December 31, it was determined that Machine B had been used 4,746 hours during 2015. (c) On December 31, before computing depreciation expense on Machine C, the management of Eshkol, Inc. decided the useful life remaining from January 1, 2015, was 10 years. (d) On December 31, it was discovered that a machine purchased in 2014 had been expensed completely in that year. This machine cost $63,280 and has a useful life of 10 years and no salvage value. Management has decided to use the double-declining-balance method for this machine, which can be referred to as “Machine E.” Prepare the necessary correcting entries for the year 2015. Record the appropriate depreciation expense on the above-mentioned machines

Answer 1

Working Notes - 1

Particulars	Machine A	Machine B	Machine C	Machine D
Original cost	$103960	$115260	$180800	$180800
Years Purchased	2009	2010	2011	2013
Useful Life	10 Years sum of years = 55	15000 Hours	15 years	10 Years
Salvage Value	$7006	$6780	$11300	$11300
Depreciation method	Sum of years Digit method	Activity Based Methos	Straight line method	Double declining Method
Accumulated Depreciation through 2014	$70512	$79552	$33900	$36160

Working Note 2 - Depreciation Calculation

Machine A - Sum of years = 55

Depreciation for 2015 = 5th Year

Depreciation = (Asset cost - Salvage value) * Year/Sum of year

Depreciation = ($103960 - $7006) * 5/55 = $8814

Machine B - Total Hours used in 2015 - 4746

Depreciation = (Asset cost - Salvage value)*Hours used in 2015/Total Hours used

Depreciation = ($115260 - $6780)*4746/15000

Depreciation = $34323

Machine C - Revised Life = 10 Years from 2015

Depreciation = (Asset cost - Salvage value - Accumulated depreciation)/Revised life

Depreciation = ($180800 - $11300 - $33900)/10 = $13560

Machine E - Double declining rate = Straight line rate * 2

Straight line rate = 10 years or 10%

Double declining rate = 10%*2 = 20%

Depreciation = $63280*20% = $12656

Solution

Machine	Accounts Title	Debit	Credit
Machine A 1)	Depreciation expenses - Machine A	$8814
	Accumulated Depreciation - Machine A		$8814
	(Depreciation expenses recorded)
2)	Accumulated Depreciation - Machine A ($8814 + $70512)	$79326
	Machine A ($103960 - $29380)		$74580
	Gain on Disposal of Machine A		$4746
	(Gain on disposal credited as income and machinery and accumulated expenses written off) Gain on disposal - (Sale value - Book value) Sale value = $29380 Book value = $103960 - $79326 = $24634 Gain on disposal = $4746
Machine B	Depreciation expenses - Machine B	$34323
	Accumulated Depreciation - Machine B		$34323
	(Depreciation expenses entered)
Machine C	Depreciation expenses - Machine C	$13560
	Accumulated Depreciation - Machine C		$13560
	(Depreciation expenses entered)
Machine E 1)	Machine E	$63280
	Retained Earnings		$63280
	(Machine cost debited as asset)
2)	Depreciation expenses - Machine E	$12656
	Accumulated depreciation - Machine E		$12656
	(Depreciation ecpenses entered)