Question

In: Accounting

. A company purchased and installed a machine on January 1, 2012, at a total cost...

. A company purchased and installed a machine on January 1, 2012, at a total cost of $108,500. Straight-line depreciation was calculated based on the assumption of a seven-year life and no salvage value. The machine was disposed of on April 1, 2016. (25 Points)

a. Prepare the general journal entry to update depreciation to April 1, 2016.
b. Prepare the general journal entry to record the disposal of the machine under each of these three independent situations:
(1) The machine was sold for $45,000 cash.
(2) The machine was sold for $36,000 cash.
(3) The machine was totally destroyed in a fire and the insurance company settled the claim for $41,000 cash.

Answer:

a.

b.(1)


b.(2)
  


b.(3)               

Please explain your calculations so it is easier to understand, thank you.

Solutions

Expert Solution

Annual depreciation under striaght-line method = (Cost of machine - Salvage value)/Useful life

Here,

Cost of machine = $108,500

Salvage value = 0

Useful life = 7 years

Therefore,

Annual depreciation = ($108,500 - 0)/7 = $15,500

The machine was disposed of on April 1, 2016. This means the machine was used for only three months in 2016 that is January through March.

Thus, depreciation to be recorded on April 1, 2016 = $15,500 x 3/12 = 3,875

a. Prepare the general journal entry to update depreciation to April 1, 2016.

Date Account Titles Debit Credit
Apr. 1, 2016 Depreciation Expense - Machine 3875
      Accumulated Depreciation - Machine 3875

b.

1.

Accumulated depreciation on April 1, 2016 = ($15,500 x 4) + $3,875 = $65,875

Book value of the machine on April 1, 2016 = Cost - Accumulated depreciation = $108,500 - $65,875 = $42,625

The machine was sold for $45,000

Therefore,

Gain on sale of machine = $45,000 - $42,625 = $2,375

Prepare the required journal entry as follows:

Account Titles and Explanation Debit Credit
Cash 45000
Accumulated Depreciation - Machine 65875
      Equipment 108500
      Gain on Sale of Machine 2375

2.

Book value of the machine on April 1, 2016 = Cost - Accumulated depreciation = $108,500 - $65,875 = $42,625

The machine was sold for $36,000

Therefore,

Loss on sale of machine = $42,625 - $36,000 = $6,625

Prepare the required journal entry as follows:

Account Titles and Explanation Debit Credit
Cash 36000
Accumulated Depreciation - Machine 65875
Loss on sale of machine 6625
      Equipment 108500

3.

Book value of the machine on April 1, 2016 = Cost - Accumulated depreciation = $108,500 - $65,875 = $42,625

Cash received from insurance company = $41,000

Therefore,

Loss from fire = $42,625 - $41,000 = $1,625

Prepare the required journal entry as follows:

Account Titles and Explanation Debit Credit
Cash 41000
Accumulated Depreciation - Machine 65875
Loss from fire 1625
      Equipment 108500

Related Solutions

1. A company purchased and installed a machine on January 1, 2012, at a total cost...
1. A company purchased and installed a machine on January 1, 2012, at a total cost of $108,500. Straight-line depreciation was calculated based on the assumption of a seven-year life and no salvage value. The machine was disposed of on April 1, 2016. (25 Points) a. Prepare the general journal entry to update depreciation to April 1, 2016. b. Prepare the general journal entry to record the disposal of the machine under each of these three independent situations: (1) The...
On January 1, 2012, Vallahara Company purchased machinery for $650,000, which it installed in a rented...
On January 1, 2012, Vallahara Company purchased machinery for $650,000, which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight-line method to a residual value of $50,000. Late in 2016, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of 5 years, over which it estimates the asset will produce total cash inflows of $1,000,000 and will incur...
On January 1, 2012, Vallahara Company purchased machinery for $650,000, which it installed in a rented...
On January 1, 2012, Vallahara Company purchased machinery for $650,000, which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight-line method to a residual value of $50,000. Late in 2016, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of 5 years, over which it estimates the asset will produce total cash inflows of $1,000,000 and will incur...
Freedom Co. purchased a new machine on July 2, 2016, at a total installed cost of...
Freedom Co. purchased a new machine on July 2, 2016, at a total installed cost of $49,000. The machine has an estimated life of five years and an estimated salvage value of $6,700. Required: a-1. Calculate the depreciation expense for each year of the asset's life using Straight-line depreciation. Year Depreciation Expense 1 $8,460 2 $8,460 3 $8,460 4 $8,460 5 $8,460 a-2. Calculate the depreciation expense for each year of the asset's life using Double-declining-balance depreciation. Year Depreciation Expense...
SBS Company purchased a new machine on January 1, at a cost of $420,000. The machine...
SBS Company purchased a new machine on January 1, at a cost of $420,000. The machine has an expected useful life of four years and an expected salvage value of $40,000. The company expects to use the machine for 1,300 hours in the first year, 1,900 hours in the second year, and 900 hours in the third and fourth year, respectively. (a) Calculate Depreciation Expenses for each year using Straight-Line Method Year Depreciation Expenses 1 $ 2 $ 3 $...
On January 1, 2012, Bushong Company purchased equipment at a cost of $12,600. The equipment had...
On January 1, 2012, Bushong Company purchased equipment at a cost of $12,600. The equipment had an estimated useful life of 6 years or 30,000 hours. The equipment will have a $1,200 salvage value at the end of its life. The equipment was used 6,500 hours in 2012. The depreciation expense for the year ending December 31, 2012, using the units-of-production method would be:
A machine was purchased and installed in the beginning of year 2019. The estimated cost in...
A machine was purchased and installed in the beginning of year 2019. The estimated cost in the period stated dollars is below. The costs are in current period dollars at the end of the year. For example, 2020 cost is reported in end of year 2020 dollars. An inflation rate applicable to years 2020 and higher of 2.85% was used in the estimation process. What is the machine's Present Worth of costs including purchase amount in 2019 dollars using a...
Duluth Ranch, Inc. purchased a machine on January 1, 2018. The cost of the machine was...
Duluth Ranch, Inc. purchased a machine on January 1, 2018. The cost of the machine was $30,500. Its estimated residual value was $9,500 at the end of an estimated 5-year life. The company expects to produce a total of 10,000 units. The company produced 1,150 units in 2018 and 1,600 units in 2019. Required: a. Calculate depreciation expense for 2018 and 2019 using the straight-line method. b. Calculate the depreciation expense for 2018 and 2019 using the units-of-production method. c....
Duluth Ranch, Inc. purchased a machine on January 1, 2018. The cost of the machine was...
Duluth Ranch, Inc. purchased a machine on January 1, 2018. The cost of the machine was $32,000. Its estimated residual value was $10,000 at the end of an estimated 5-year life. The company expects to produce a total of 20,000 units. The company produced 1,200 units in 2018 and 1,650 units in 2019. Required: Calculate depreciation expense for 2018 and 2019 using the straight-line method. Calculate the depreciation expense for 2018 and 2019 using the units-of-production method. Calculate depreciation expense...
Duluth Ranch, Inc. purchased a machine on January 1, 2018. The cost of the machine was...
Duluth Ranch, Inc. purchased a machine on January 1, 2018. The cost of the machine was $38,000. Its estimated residual value was $12,000 at the end of an estimated 5-year life. The company expects to produce a total of 20,000 units. The company produced 1,400 units in 2018 and 1,850 units in 2019. Required: Calculate depreciation expense for 2018 and 2019 using the straight-line method. Calculate the depreciation expense for 2018 and 2019 using the units-of-production method. Calculate depreciation expense...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT