On January 1, 2015, General Manufacturing purchased a machine for $800,000 that

Question

On January 1, 2015, General Manufacturing purchased a machine for $800,000 that it expected to have a useful life of six years. The company estimated that the residual value of the machine was $20,000. General Manufacturing used the machine for two years and sold it on January 1, 2017, for $260,000. As of December 31, 2016, the accumulated depreciation on the machine was $260,000. 1. Calculate the gain or loss on the sale of the machinery. 2. Record the sale of the machine on January 1,2017 1. Calculate the gain or loss on the sale of the machinery. General Manufacturing will record a 2. Record the sale of the machine on January 1, 2017. (Record debits first, then credits. Exclude explanations from any journal entries.) of $ on the sale of the machinery. Journal Entry Date Accounts Debit Credit 2017 Jan. 1

Explanation / Answer

Purcahse date of machinery = January 1, 2015

Cost = 800,000

Useful life = 6 years

Residual value = 20,000

Depreciation = (Cost - Residual value) / useful life

= (800,000 - 20,000) / 6 = 130,000

Accumulated depreciation for 2 years from January 1, 2015 to January 1, 2017 = 130,000*2 = 260,000

Book value of machinery on January 1, 2017 = Cost - Accumulated depreciation = 800,000 - 260,000 = 540,000

1. Sale value of machinery = 260,000

Loss on sale = Book value - Sale value = 540,000 - 260,000 = 280,000

2.

Cash 260,000 Accumulated depreciation   260,000 Loss on sale 280,000 Machinery 800,000

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