Question
A business acquired a new machine for use in the companies production process. The machine has an initial cost of $60,000 with a salvage value
A business acquired a new machine for use in the companies production process. The machine has an initial cost of $60,000 with a salvage value of $5000. The useful life of the machine is anticipated to be 5 years. The machine stamps metal objects in the production process, it is estimated the company will stamp 110,000 products during the machines useful life. Complete the following depreciation schedule using the straight line, declining balance (200%) and units of production methods. 55000/110000=.50 cents per DD Rate = 1/5x2= 40% Year 1 Straight Line 11,000 11,000 49,000 Units of Production @ 18,000 stamps 9,000 9,000 51,000 Declining Balance 24,000 24,000 36,000 Year 2 Straight Line 11,000 22,000 38,000 Units of Production @ 22,000 stamps 11,000 20,000 40,000 Declining Balance 14,400 38,400 21,600 Year 3 Straight Line 11,000 33,000 27,000 Units of Production @ 23,500 stamps 11,750 31,750 28,250 Declining Balance 8,640 47,040 12,960 Year 4 Straight Line 11,000 44,000 16,000 Units of Production @ 10,000 stamps 5,000 36,750 23,250 Declining Balance 5,184 52,224 7,776 Year 5 Straight Line 11,000 55,000 5,000 Units of Production @ 18,000 stamps 9,000 45,750 14250* Declining Balance 2776** 55,000 5,000 Cash 12,000 Accum. Depreciation 33,000 Machine 60,000 Loss on Sale of Asset 15,000 * Doesn't reach salvage value of $5,000 because estimated usage and reality are different. ** Amount forced, so that salvage value is $5,000 Part 2 - The business decides to use the Straight Line Method. At the end of year three, the business changes its strategic focus and outsources the stamping process. The machine is no longer necessary and is sold for $12,000. Prepare the journal entry to record the sale of the asset.
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