Question

Disposal of Fixed Asset

Pacifica Manufacturing retired a computerized metal stamping machine on December 31, 2019. Pacifica sold the machine to another company and did not replace it. The following data are available for the machine:

Cost (installed), 1/1/2014 $880,000
Residual value estimated on 1/1/2014 60,000
Estimated life as of 1/1/2014 10 years
The machine was sold for $225,000 cash. Pacifica uses the straight-line method of depreciation.

Answer 1

$328000

Step-by-step explanation:

Given: Cost of machine= $880000

Residual value= 60000

Estimated life= 10 years

Company use straight line depreciation method.

∴ Depreciation =
`\frac{\textrm{cost of machine- residual value}}{estimated\ useful\ life}`

⇒ Depreciation=
`(880000 - 60000)/(10) = (820000)/(10)`

∴ Depreciation=
`\$ 82000` per year.

Now, lets find the value of depreciation.

∵ Machine is sold on December 31, 2019, which is 6 years after it is installed.

∴ Depreciation value after 6 years=
`\textrm{Depreciation value every year * number of years used}`

Depreciation value after 6 years=
`82000* 6 = \$ 492000`

Next, finding the value of machine after 6 years of depreciation.

Value of machine after 6 years=
`820000 - 492000= \$ 328000`

∴ Disposal value of machine after 6 years of usage is
`\$ 328000`, however, machine was sold at $225000.