Question

CP 8-11 The Savage Corporation purchased three milling machines on January 1, 2015 and immediately placed them into service. The following information relates to these purchases: Machine 1 Machine 2 Machine 3 Cost $7,500 $7,500 $7,500 Salvage value -0 1,200 300 Useful life 5 Years 6 Years 8 Years The company uses the straight-line method of depreciation, and records 12 year depreciation in the years of acquisition and disposal. On January 1, 2020, machine 1 was sold for $500. On the same day, management re-evaluated the estimated useful lives and the salvage values of the remaining machines. They came to the conclusion that machine 2 had a remaining useful life of two years (that is, to December 31, 2021), while salvage value remained unchanged. Machine 3 had a remaining useful life of five years (that is, to December 31, 2024) but now had no salvage value. Required: Prepare journal entries 1. To record the sale of machine 1 on January 1, 2020. 2. To record the revised 2020 depreciation expense for machine 2. 3. To record the revised 2020 depreciation expense for machine 3. BA E

Answer 1

Machine 1 Cost of machine Depreciation for 5 years Book value Sale value Gain on sale of machine 1 $7,500 $7,500 $7,500/5 $0 $500 $500 1 Credit Debit $500 $7,500 Date Account Titles and Explanation Jan 1,2020 Bank Accumulated Depreciation Machine Gain on sale of machine (To record the sale of machine 1) $7,500 $5001 Machine 2 Cost of machine 2 Depreciation for 5 years Book value January 1, 2020 $7,500 $5,250 ($7,500-$1,200)/6 years* 5 $2,250 $525 ($2,250-$1,200)/2 years Depreciation for 2020 for Machine 2 (Book value Jan 1, 2020 - Salvage value) divided by remaining useful life 2 Credit Debit $525 Date Account Titles and Explanation Dec 31, 2020 Depreciation Accumulated Depreciation (To record depreciation expense) $525 Machine 3 Cost of machine Depreciation for 5 years Book value January 1, 2020 $7,500 $4,500 ($7,500-$300)/8 years* 5 $3,000 $600 ($3,000)/5 years Depreciation for 2020 for Machine 3 (Book value Jan 1, 2020 divided by remaining useful life 3 Credit Debit $600 Date Account Titles and Explanation Dec 31, 2020 Depreciation Accumulated Depreciation (To record depreciation expense) $600