Answer:
b. A debit to loss on sale for $2,625
Explanation:
As per straight line depreciation method,
Depreciation rate = = 25%
Depreciation rate as per double declining balance method is twice of straight line depreciation rate.
Now, as per double declining balance method:
Depreciation rate = 2×25% = 50%
Machine was purchased on September 1, year 1. This means depreciation expense for year 1 will be charged for 4 months only.
Depreciation expense for year 1 = $75,000×50%×
Depreciation expense for year 1 = $12,500
(Depreciation expense schedule for 3 years has been shown below.)
Now,
Selling price < Book value
Thus, the company incurred loss on sale of machine.
Loss on sale of machine = Book value - selling price
Loss on sale of machine = $15,625 - $13,000
Loss on sale of machine = $2,625
Now, the journal entry for sale of machine has been shown below.