On January 1, 2019, Blooming Inc. acquired a new automatic seed-planting machine for $150,000. The company planned to use the machine for 5 years and then sell it for an estimated amount of $40,000. Due to a sudden change of plans, the machine was sold on December 31, 2020 for $100,000.
Required: Assuming the company uses the declining balance method of depreciation, record the journal entry for the disposal of the equipment. Assume that all depreciation has already been accounted f
| Date | General Journal | Debit ($) | Credit ($) |
| 31 Dec 2020 | Cash | $ 100,000 | |
| Gain on sale of machine | $ 4,000 | ||
| Machine | $ 96,000 | ||
| Machine sold for 100,000 |
In the declining balance method depriciation is charged at the straight line rate on the declining book value.
Straightline rate= 1/useful life
Useful life= 5 years
Straight line rate= 1/5= 20%
Depreciation to be charged in 1st year i.e in 2019= 150,000*20%= 30,000
Ending book value on 31 Dec 2019= 150,000-30,000=120,000
Depreciation to be charged in 2020= Opening book value * Depreciation rate
=120,000*20%
=$24,000
Closing book value of machine= 120,000-24,000= $96,000
Machine is sold for 100,000
So there is a gain on sale which is calculated as below:
Sale price-Book value as on 31 dec 2020
=100,000-96,000
=$4,000 gain
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