Question

Coyote Manufacturing bought a machine for $90,000 on April 1, 2018. To install the machine Coyote Manufacturing spent $10,000. It was estimated that the useful life be 4 years or 1,000,000 machine-hours. And the residual value at the end of the useful life be $4,000. Number of hours that the machine has been used or will be used are as follows: 2018 2019 2020 2021 2022 70,000 hours 240,000 290,000 230,000 170,000 Instructions: 1. Prepare journal entries for the purchase of the truck on April 1, 2018. 2. Compute depreciation expenses on the machine for the years ending on December 31 of 2018 and 2019 using following methods; 1) Straight-line method, 2) Activity based method, 3) Sum-of-the-years'-digit, 4) Double declining method. 3. Coyote sold this machine for $50,000 on January 1, 2020 - Prepare any necessary journal entries for this sale using Sum-of-years’-digit method

Answer 1

			Debit	Credit
1	4/1/2018	Machine Asset	100000
		Cash		100000
2	SLM
	Depreciable value	(100000-4000)	$96,000.00
	Life of asset		4 years
	YEAR	Depreciation
	12/31/2018	$18,000.00	(24000*9/12)
	12/31/2019	$24,000.00
	Activity based
	Depreciaiton per hour	=96000/1000000	0.096	per hour
	Year	Hours	Depreciation
	12/31/2018	70000	$6,720.00
	12/31/2019	240000	$23,040.00
	Sum of year's digit
		Depreciation	Calculation
	12/31/2018	$36,000	96000*5/10*9/12
	12/31/2019	$40,800	(96000*5/10*3/12)+(96000*4/10*9/12)
	Double declingin method
	Dep. Reate	=(100/4)*2	50
	Year	Book value	Depreciation	Closing book value
	12/31/2018	100000	$37,500.00	$62,500.00
	12/31/2019	$62,500.00	$31,250.00	$31,250.00
3	Date	Details	Debit	Credit
	1/1/2020	Cash	50000
		Accumulated depreciation	76800
		Gain on sale of asset	26800
		Machine Asset		100000