Question

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.

Answer 1

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)