Final answer:
To compute accumulated depreciation on the machine at January 1, 2019, divide the depreciable cost by the useful life. Multiply the annual depreciation expense by the number of years the machine has been used to find the accumulated depreciation. To record the sale of the machine on January 1, 2019, compare the selling price with the book value and recognize a loss if the selling price is less than the book value.
Step-by-step explanation:
To compute accumulated depreciation on the machine at January 1, 2019 (same as December 31, 2018), we need to calculate the annual depreciation expense. The machine was purchased for $970,000 and is expected to have a residual value of $110,000 at the end of its useful life of ten years. The depreciable cost of the machine is the original cost minus the residual value, which is $970,000 - $110,000 = $860,000. To find the annual depreciation expense, we divide the depreciable cost by the useful life: $860,000 ÷ 10 = $86,000.
To calculate the accumulated depreciation at January 1, 2019, we multiply the annual depreciation expense by the number of years the machine has been used: $86,000 × 4 = $344,000. Therefore, the accumulated depreciation on the machine at January 1, 2019, is $344,000.
To record the sale of the machine on January 1, 2019, we need to compare the selling price of $250,000 with the book value of the machine. The book value of the machine is the original cost minus the accumulated depreciation: $970,000 - $344,000 = $626,000. Since the selling price is less than the book value, we need to recognize a loss on the sale. The loss on the sale is the difference between the selling price and the book value: $250,000 - $626,000 = -$376,000. To record the sale, we would debit the Loss on Sale of Machine account for $376,000 and credit the Machinery account for $970,000 and the Accumulated Depreciation account for $344,000.