Question

Required information CC9-1 Accounting for the Use and Disposal of Long-Lived Assets [LO 9-3, LO 9-5] [The following information applies to the questions displayed below.] Nicole's Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the wellness programs at NGS. The machine was purchased at the beginning of the year at a cost of $16,000. The estimated useful life was five years and the residual value was $1,000. Assume that the estimated productive life of the machine is 10,000 hours. Expected annual production was year 1, 2,400 hours, year 2, 2,300 hours; year 3, 2,200 hours; year 4, 2,100 hours, and year 5, 1,000 hours. CC9-1 Part 2 2. Assume NGS sold the hydrotherapy tub system for $4,800 at the end of year 3. Prepare the journal entry to account for the disposal of this asset under the three different methods. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Round your final answers to the nearest dollar amount.)

need help with journal entry, thanks!

3 methods: straight line method, units of production method, double declining balance method

Answer 1

1)

Depreciation as per straight line = (16000-1000)/5 = 3000

Accumulated depreciation as per straight line at the end of year 3 = 3000*3 = 9000

Book value at year 3 end = 16000-9000 = 7000

Loss on disposal = 7000-4800 = 2200

Accounting entry at year 3 end on disposal of asset if straight line method is followed:-

Date	Particulars	Debit	Credit
At year 3 end	Accumulated depreciation	9000
	Cash/Bank	4800
	Loss on disposal of machine	2200
	Machine		16000

2)

Straight line rate = 3000/15000 = 20%

Double declining rate = 20*2 = 40%

Depreciation for year 1 = 16000*40% = 6400

Depreciation for year 2 = (16000-6400)*40% = 3840

Depreciation for year 3 = (16000-6400-3840)*40% = 2304

Accumulate depreciation = 6400+3840+2304 = 12544

Book value of asset at year 3 end = 16000-12544 = 3456

Gain on disposal = 4800-3456 = 1344

Accounting entry at year 3 end on disposal of asset if double declining method is followed:-

Date	Particulars	Debit	Credit
At year 3 end	Accumulated depreciation	12544
	Cash/Bank	4800
	Gain on disposal of machine		1344
	Machine		16000

3) Units of production method:

Depreciable base = 16000-1000 = 15000

Depreciation for year 1 = (2400/10000)*15000 = 3600

Depreciation for year 2 = (2300/10000)*15000 = 3450

Depreciation for year 3 = (2200/10000)*15000 = 3300

Accumulated depreciation = 10350

Book value at year 3 end = 16000-10350 = 5650

Loss on disposal = 5650 - 4800 = 850

Accounting entry at year 3 end on disposal of asset if units of production method is followed:-

Date	Particulars	Debit	Credit
At year 3 end	Accumulated depreciation	10350
	Cash/Bank	4800
	Loss on disposal of machine	850
	Machine		16000