Question

Problem 9-17 Partial year's depreciation; alternative methods: exchange/disposal of PPE LO2,3,6 CHECK FIGURES: 1. Machine 6640 - $10,800: Machine 6691 - $8,325: Machine 6711 = $7.155 Videotron Ltée completed the following transactions involving printing equipment. Machine 6600 was purchased for cash on May 1, 2017, at an installed cost of $72,900. Its useful life was estimated to be four years with an $8,100 trade-in value Straight-line depreciation was recorded for the machine at the end of 2017 and 2018 On August 5, 2019, it was traded for Machine 6691, which had an installed cash price of $64,000. A trade in allowance of $10.500 was received and the balance was paid in cash. The new machine's life was estimated at five years with a $9,450 trade in value. The fair values of Machines 6690 and 6691 were not reliably determined at the time of the exchange. Double-declining-balance depreciation was recorded on each December 31 of Machine 6691's life. On February 1, 2022, it was sold for $13,500. Machine 6711 was purchased on February 1, 2022, at an installed cash price of $79,650. It was esti- mated that the new machine would produce 75,000 units during its useful life, after which it would have an $8,100 trade-in value. Units-of-production depreciation was recorded on the machine for 2022, a pe- riod in which it produced 7,500 units of product. Between January 1 and October 3, 2023, the machine produced 11,250 more units. On October 3, 2023, it was sold for $54,000. Required Prepare journal entries to record: 1. The depreciation expense recorded to the nearest whole month on the first December 31 of each machine's life (for units-of-production, round the rate per unit to three decimal places). 2. The purchase/exchange/disposal of each machine.

Answer 1

1.      Depreciation expense on first December 31 of each machine’s life

2017
Dec.   31	Depreciation Expense, Machine 66901..........................	10,800
	Accumulated Depreciation, Machine 6690............		10,800
	To record depreciation.
2019
Dec.   31	Depreciation Expense, Machine 66913..........................	8,325
	Accumulated Depreciation, Machine 6691............		8,325
	To record depreciation.
2022
Dec.   31	Depreciation Expense, Machine 67115..........................	7,155
	Accumulated Depreciation,         Machine 6711.........................................................		7,155
	To record depreciation.

2.      Purchase/exchange/disposal of each machine

2017
May 1	Machine 6690................................................................	72,900
	Cash..........................................................................		72,900
	To record purchase of Machine 6690.
2019
Aug. 5	Machine 6691 (= to assets given up).............................	49,950
	Accumulated Depreciation, Machine 66902..................	36,450
	Machine 6690........................................................		72,900
	Cash..........................................................................		13,500
	To record exchange of Machine 6690.
2022
Feb. 1	Cash..................................................................................	13,500
	Accumulated Depreciation, Machine 66914..................	35,465
	Loss on Disposal...............................................................	985
	Machine 6691........................................................		49,950
	To record sale of Machine 6691.
1	Machine 6711................................................................	79,650
	Cash..........................................................................		79,650
	To record purchase of Machine 6711.
2023
Oct. 3	Cash..................................................................................	54,000
	Accumulated Depreciation, Machine 67116..................	17,888
	Loss on Disposal...............................................................	7,762
	Machine 6711........................................................		79,650
	To record sale of Machine 6711.

Calculations:

1.                  72,900 – 8,100  =  16,200/year  × 8/12  =  10,800

              4

2.                  Depreciation       2017: 10,800

  2018:     16,200

  2019:        9,450        (16,200  × 7/12)

      Accum. Deprec.   36,450

3.                  Rate = 2/5 = .40 or 40%

            40% × 49,950 × 5/12 = 8,325

4.   2016:     8,325

            2020:  40% × (49,950 – 8,325) = 16,650

            2021: 40% × (49,950 – 8,325 – 16,650) =   9,990

            2022:  40% × (49,950 – 8,325 – 16,650 – 9,990) × 1/12 =               500

  35,465

5.                  (79,650 – 8,100)/75,000 = $0.954/unit

            2022:  7,500 units × 0.954/unit = 7,155

6.                  Depreciation for Jan. 1/2023 to Oct. 3/2023:

            = 11,250 units × 0.954/unit =                10,733

  7,155

            Accum. Deprec. 17,888