Question

Nicole’s Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the wellness programs at NGS. The machine was purchased at the beginning of the year at a cost of $6,500. The estimated useful life was five years and the residual value was $500. Assume that the estimated productive life of the machine is 10,000 hours. Expected annual production was year 1, 2,350 hours; year 2, 2,450 hours; year 3, 2,100 hours; year 4, 2,100 hours; and year 5, 1,000 hours.

Assume NGS sold the hydrotherapy tub system for $1,950 at the end of year 3. Prepare the journal entry to account for the disposal of this asset under the three different methods. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Round your final answers to the nearest dollar amount.)

1. Record the disposal of the hydrotherapy tub system for $1,950 in year 3 assuming depreciation was calculated using the straight-line method.​

2. Record the disposal of the hydrotherapy tub system for $1,950 in year 3 assuming depreciation was calculated using the units-of-production method.

3. Record the disposal of hydrotherapy tub system for $1,950 in year 3 assuming depreciation was calculated using the double-declining method.

Answer 1

Straight line Method
A	Cost	$            6,500.00
B	Residual Value	$                500.00
C=A - B	Depreciable base	$            6,000.00
D	Life [in years left ]	5
E=C/D	Annual SLM depreciation	$            1,200.00

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$                 6,500.00	$            1,200.00	$      5,300.00	$        1,200.00
2	$                 5,300.00	$            1,200.00	$      4,100.00	$        2,400.00
3	$                 4,100.00	$            1,200.00	$      2,900.00	$        3,600.00

Requirement 1
Cost	$    6,500.00
Accumulated depteciation	$    3,600.00
Book value	$    2,900.00
Sales price	$    1,950.00
Book value	$    2,900.00
Gain /(loss)	$     (950.00)

Transaction	General Journal	Debit	Credit
1…	Cash	$       1,950.00
	Accumulated Depreciation	$       3,600.00
	Loss on sale of Equipment	$          950.00
	Equipment		$        6,500.00
	(Equipment sold)

Requirement 2

Units of Production method
A	Cost	$            6,500.00
B	Residual Value	$                500.00
C=A - B	Depreciable base	$            6,000.00
D	Usage in units(in Units)	10000
E	Depreciation per Units	$                    0.60

Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$                 6,500.00	2350	$      1,410.00	$        5,090.00	$       1,410.00
2	$                 5,090.00	2450	$      1,470.00	$        3,620.00	$       2,880.00
3	$                 3,620.00	2100	$      1,260.00	$        2,360.00	$       4,140.00

Requirement b2
Cost	$    6,500.00
Accumulated depteciation	$    4,140.00
Book value	$    2,360.00
	$                 -
Sales price	$    1,950.00
Book value	$    2,360.00
Gain /(loss)	$     (410.00)

Transaction	General Journal	Debit	Credit
2	Cash	$       1,950.00
	Accumulated Depreciation	$       4,140.00
	Loss on sale of Equipment	$          410.00
	Equipment		$        6,500.00
	(Equipment sold)

Requirement 3

Double declining Method
A	Cost	$            6,500.00
B	Residual Value	$                500.00
C=A - B	Depreciable base	$            6,000.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$            1,200.00
F=E/C	SLM Rate	20.00%
G=F x 2	DDB Rate	40.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$                 6,500.00	40.00%	$      2,600.00	$        3,900.00	$       2,600.00
2	$                 3,900.00	40.00%	$      1,560.00	$        2,340.00	$       4,160.00
3	$                2,340.00	40.00%	$          936.00	$        1,404.00	$       5,096.00

Requirement 3
Cost	$    6,500.00
Accumulated depreciation	$    5,096.00
Book value	$    1,404.00
Sales price	$    1,950.00
Book value	$    1,404.00
Gain /(loss)	$        546.00

Transaction	General Journal	Debit	Credit
3	Cash	$       1,950.00
	Accumulated Depreciation	$       5,096.00
	Gain on sale of equipment		$           546.00
	Equipment		$        6,500.00
	(Equipment sold)