Question

Depreciation A company purchased a machine on January 1 of the current year for $800,000. Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 25,000 hours, with a salvage value of $80,000). During the machine's 5-year life its hourly usage was: 4,500; 4,000; 6,000; 6,000; and 4,500 hours. Double- Units-of Declining- Balance Year Year 1 Straight-Line Production Year 2 Year 3 Year 4 Year 5 Total Prepare the journal entry to dispose of the machine on Jan. year 6 assuming it was sold for $90,000 cash of

Answer 1

Year 1 Depreciation: $288,000;

Year 2 Depreciation: $128,000;

Year 3 Depreciation: $192,000;

Year 4 Depreciation: $192,000;

Year 5 Depreciation: 0.

Accounting for Disposal of Machine:

Dr Cash $90,000

Dr Accumulated Depreciation - Machine $800,000

Cr Machine $800,000

Cr Gain on machine disposal $90,000

Step-by-step explanation:

- Depreciation calculation:

Depreciation in Year 1: Depreciation rate x Cost of asset x 2 = (4,500/25,000) x $800,000 x 2 = $288,000;

Depreciation in Y2 = $800K/25,000 x 4,000 = $128,000;

Depreciation in each year of Y3 and Y4: $800K/25,000 x 6,000 = $192,000;

Depreciation in Y5: 0 ( as total depreciation after Y4 is equal to book value which is $800,000);

- Gain calculation:

As the book value of the machine at the time of disposal is 0; gain on disposal is the sales proceed receipt $90,000