On Jannary 1,2017 Advantage Co. purchased a new machine for $4,$00. The machine

Question

On Jannary 1,2017 Advantage Co. purchased a new machine for $4,$00. The machine has a useful life of 5 years, and a residual (salvage) value of sso0. It is estimated that the machine will produce 5,000 units over its lifetime. Advantage closes its books once a year, on 1231 . (a) If Advantage uses the straight-line method of depreciation, what journal entry would Advantage record on December 31, 2019 inrelation to depreciation of this machine? b) If Advantage uses the production method of depreciation what jourmal entry would Advantage record on December 31, 2018 in relation to depreciation of this machine, if the machine produces 1,500 units in 2018

Explanation / Answer

Part 2) a) Journal entry passed on Dec 31 2019 towards the depreciation on SLM would be: DEBIT DEPRECIATOIN EXPENSE $800 CREDIT ACCUMULATED DEPRECIATION - MACHINE $800 (4500-500)/5 = $800 per year b) Journal entry passed on Dec 31 2018 towards the depreciation on PM would be: DEBIT DEPRECIATOIN EXPENSE $1,200 CREDIT ACCUMULATED DEPRECIATION - MACHINE $1,200 (1500/5000)*4000 = $1200 double declining rate = SLM rate 20% * 2 = 40% depreciation for 2017 = 4500*40% = 1800 depreciation for 2018 = (4500-1800)*40% = 1080 c) Journal entry passed on Dec 31 2017 towards the depreciation on D-DM would be: DEBIT DEPRECIATOIN EXPENSE $1,800 CREDIT ACCUMULATED DEPRECIATION - MACHINE $1,800 d) Journal entry passed on Dec 31 2018 towards the depreciation on D-DM would be: DEBIT DEPRECIATOIN EXPENSE $1,080 CREDIT ACCUMULATED DEPRECIATION - MACHINE $1,080

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