In: Accounting
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:
2. Prepare the proper journal entry for the sale of the machine under the three different depreciation methods.
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) |