Question 3 (7 marks)

On 1 July 2019, Briarly Pty Ltd purchased a new printing machine for $152,000. The company expected the machine to be used for ten (10) years or 20,000 machine hours, with an estimated residual value of $2,000 at the end of its useful life. Actual usage of the machine for the first three (3) years was noted as follows:

Year 1: 400 hours

Year 2: 1200 hours

Year 3: 2000 hours

Required:

a) Calculate the depreciation expense for the second year using each of the methods below: (3 marks)

I. Straight-line

II. Units of production

III. Reducing balance method at the rate of 20% each year

b) If the straight line method was used and the machine was sold at the end of year 2 for $110,000, calculate the carrying amount of the machine at the end of year 2. (2 marks)

c) Prepare the journal entry to record the sale of the machine. (2 marks)