Question

In: Accounting

A new machine costs $120,000, has an estimated useful life of five years and an estimated...

A new machine costs $120,000, has an estimated useful life of five years and an estimated salvage value of $15,000 at the end of that time. It is expected that the machine can produce 210,000 widgets during its useful life.

The New Times Company purchases this machine on January 1, 2017, and uses it for exactly three years. During these years the annual production of widgets has been 80,000, 50,000, and 30,000 units, respectively. On January 1, 2020, the machine is sold for $45,000.

Required:

  1. Straight-line
  2. Units-of-production
  3. Double-declining-balance

2.         Prepare the proper journal entry for the sale of the machine under the three different depreciation methods.

Solutions

Expert Solution

Calculate depreciation expense :

Depreciation rate = (120000-15000)/210000 = 0.50 per unit

2017 2018 2019
Straight line (120000-15000/5) = 21000 21000 21000
Units of production 0.50*80000 = $40000 0.5*50000 = 25000 0.50*30000 = 15000
Double declining balance 120000*40% = 48000 120000*60%*40% = 28800 120000*60%*60%*40% = 17280

Journal entry on Sale:

Straight line

Date account and explanation debit credit
Jan 1,2020 Cash 45000
Accumulated depreciation-Machine 63000
Loss on sale of machine 12000
Machine 120000
(To record sale of machine)

Units of production

Date account and explanation debit credit
Jan 1,2020 Cash 45000
Accumulated depreciation-Machine 80000
Gain on sale of machine 5000
Machine 120000
(To record sale of machine)

Double decline balance

Date account and explanation debit credit
Jan 1,2020 Cash 45000
Accumulated depreciation-Machine 94080
Gain on sale of machine 19080
Machine 120000
(To record sale of machine)

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