Question

The following data relate to the Machinery account of Eshkol, Inc. at December 31, 2014.

		Machinery
		A		B		C		D
Original cost		$63,480		$70,380		$110,400		$110,400
Year purchased		2009		2010		2011		2013
Useful life		10 years		15,000 hours		15 years		10 years
Salvage value		$4,278		$4,140		$6,900		$6,900
Depreciation method		Sum-of-the-years'-digits		Activity		Straight-line		Double-declining balance
Accum. depr through 2014*		$43,056		$48,576		$20,700		$22,080

*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 $17,940 cash. The company’s bookkeeper recorded this retirement in the following manner in the cash receipts journal.
	Cash	17,940
	Machinery (Machine A)		17,940
(b)	On December 31, it was determined that Machine B had been used 2,898 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 $38,640 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.”

Answer 1

Solution:
Journal Entries
	Particulars	Debit	Credit
(a)	Cash	17,940.00
	Machinery (Machine A)		15,042.00
	Profit on sale of Machinery (Machine A)		2,898.00
	[Refer Working note (i)]
(b)	Depreciation on Machine B	13,597.42
	Machinery (Machine B)		13,597.42
	[Refer Working note (ii)]
[c]	Depreciation on Machine C	11,828.57
	Machinery (Machine C)		11,828.57
	[Refer Working note (iii)]
(d)	Depreciation on Machine E	7,728.00
	Machinery (Machine E)		7,728.00
	[Refer Working note (iv)]
	Workings:
(i)	Total Depreciation:
	Depreciation upto 2014	43,056.00
	Add: Dep for 2005	5,382.00
	So total accumulated depreciation	48,438.00
	Less: Cost of Assets	63,480.00
	So WDV of Assets in 2015	15,042.00
	Selling price of the assets	17,940.00
	Less: WDV of the Assets	15,042.00
	So profit on sale of assets	2,898.00
(ii)	Total Cost of Machiner B	70,380.00
	Total useful hours	15,000.00
	So depreciation per hour	4.69
	Total hours during 2015	2,898.00
	So total Depreciation in 2015	13,597.42
(iii)	The cost of the machinery C	1,10,400.00
	Salvage value	6,900.00
	Useful life	15 years
	So depreciation	6,900.00
	So total depreciation charged upto 2014	20,700.00
	Remaing Balance of Machinery	89,700.00
	The revised remaing balance of life	7.00
	So revised amount of Depreciation	11,828.57
(iv)	The cost of the machinery	38,640.00
	The useful life	10 years
	The depreciation percentage	0.10
	As per double declining method the
	rate of depreciation is (10%*2)	0.20
	So depreciation in 2015	7,728.00