Question

On January​ 1, 2013​, US Manufacturing purchased a machine for $ 830,000. The company expected the machine to remain useful for ten years and to have a residual value of $ 60,000. US Manufacturing uses the​ straight-line method to depreciate its machinery. US Manufacturing used the machine for six years and sold it on January​ 1, 2018​, for $ 300,000.1. Compute accumulated depreciation on machine on January 1, 2018.2. Record the sale of the machinery on January 1,2018.

Answer 1

Answer and Explanation:

The computation and the journal entry is shown below:

1. For accumulated depreciation, first we have to find out the depreciation expense using the straight line method

= (Original cost - salvage value) ÷ (Useful life)

= ($830,000 - $60,000) ÷ (10 years)

= $77,000

Now the accumulated depreciation for 5 years is

= $77,000 × 5 years

= $385,000

2. Now the journal entry is

Cash   $300,000

Loss on sale or disposal  $145,000

Accumulated Depreciation - Machine equipment   $385,000

    To Machine equipment  $830,000

(Being the sale of the machinery is recorded)

For recording this we debited the cash, loss and accumulated depreciation as it increased the assets, losses, and the accumulated depreciation balance and credited the machine equipment as it decreased the assets