A machine costing $75,000 is purchased on September 1, Year 1. The machine is es

Question

A machine costing $75,000 is purchased on September 1, Year 1. The machine is estimated to have a salvage value of $10,000 and an estimated useful life of 4 years. Double-declining-balance depreciation is used. If the machine is sold on December 31, Year 3 for $13,000, the journal entry to record the sale will include: a)A credit to gain on sale for $8,000. b)A debit to loss on sale for $2,625. c)A credit to accumulated depreciation for $59,375. d)A debit to loss on sale for $3,042. e)A credit to gain on sale for $4,979.

Explanation / Answer

Cost of machine purchased on 1st September $75,000.00 Solvage value of the machine $10,000.00 Estimated useful life 4 Years Method of depreciataion Double declining balance depreciation Date of sale of machinary 31 Dece Year 3 Sales value of machinary $13,000.00 Calculate depreciataion Depreciataion % under SLM method = Cost of purchase/Estimated years of life = $75000/4 = $18750 or 25% Depreciataion rate under double declining method 25%*2 = 50% Depreciataion under double declining method Year Calculation Amount Year 1 75000*50%*4 months/12 months $12,500 Year 2 (75000-12500)*50% $31,250 Year 3 (75000-12500-31250)*50% $15,625 Total depreciataion till sale of asset $59,375 Written down value at the time of sale of machinary (75000-59375) $15,625.00 Less: Sale value of asset $13,000.00 Loss on sale value of asset $2,625.00 Journal entry Account title Debit Credit Cash $13,000.00 Accumulated depreciataion $59,375.00 Loss on sale of asset $2,625.00            Machinary $75,000.00 Therefore, the correct option is b) A debit to loss on sale for $2,625.

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