Question

2. KOOL Co. purchases and installs a machine on Jan. 1, 2013 at a cost of $109,000 Strigh-lie depreciation is taken each year assuming a seven-year life and a salvage cost of $4,00. The machine is disposed on Jun 29, 2017. 1) Journalize the depreciation cost of the Year 2013 and 2017.2) On Jun 2 2017 the machine is sold for $45,500 for cash. Journalize the transaction.

Answer 1

Under straight-line method, annual depreciation is calculated based on estimated useful life of the asset. That is, Annual Depreciation Depreciable cost of the asset/ Estimated useful life of the asset Cost of the asset Less: Salvage value Depreciable cost Estimated useful life Annual Depreciation$15,000 [$105,000/7 years $109,000 $105,000 7 It means that firm must record depreciation of $15,000 each year during life of the asset unless there is a disposal in between any years. If so, depreciation shall be recorded proportionately up to the date of disposal. So, for 2013 thru 2016, $15,000 of depreciation per year shall be recorded. For 2017, half year's depreciation shall be recorded as the machine is disposed on Jun. 29.

Date Account Titles and Explanation Debit Credit 01.01.2013 Machinery $109,000 $109,000 Accounts Payable (or Cash) To record machiery purchased 12.31.2013 Depreciation Expense $15,000 [As calculated above] $15,000 Accumulated Depreciation - Machinery To record depreciation for first vear $7,500 [$15,000 x 6/12] [As used for 6 months between Jan. 1 and Jun. 29] 06.29.2017Depreciation Expense $7,500 Accumulated Depreciation - Machinery To record depreciation for half year $45,500 $67,500 06.29.2017 Cash [($15,000 x 4 years)+ $7,500] [Cost of the asset] Accumulated Depreciation - Machinery $109,000 Machinery Gain on disposal of machinery $4,000 [Balancing figure -->$45,500+ $67,500 $109,000 $4,000] To record disposal of machiner