Question

Question A

On January 1, 2015, Charmin Manufacturing Company purchased a machine for $220,000. The company expects to use the machine a total of 80,000 hours over the next 10 years. The estimated sales price of the machine at the end of 10 years is $10,000. The company used the machine 8,000 hours in 2015 and 12,000 in 2016.

Requirements:

Compute and show workings for the deprecation expense to be charged using the straight line, units of production and double-declining methods of deprecation for 2015 and 2016. (Round off answers to the nearest dollar where applicable)

Compute the net book value for 2015 and 2016 if the company adopted the double declining method of deprecation.

Question B

Based on the above information, assume that Charmin Manufacturing company adopted the straight-line method and sold the machine for $180,000 on July 1^st, 2017.

Requirements:

Prepare a statement showing the computation of the gain or loss on the disposal of the machine.

Prepare a compound journal entry to record the disposal of the fixed asset as at July 1^st, 2017. (Round off answer to the nearest dollar).

Answer 1

Calculate depreciation expense :

	2015	2016
Straight line	(220000-10000/10) = 21000	21000
Units of production	(220000-10000/80000)*8000 = 21000	31500
Double decline balance	220000*20% = 44000	220000*80%*20% = 35200

Calculate net book value if adoped double declining balance :

	2015	2016
Net book value	220000*80% = 176000	176000*80% = 140800

Compute gain or loss :

Cost	220000
Less; Accumlated depreciation (220000-10000/10)*2.5	-52500
Book value	167500
Sale value	180000
Gain on sale of machine	12500

Journal entry :

Date	account and explanation	debit	credit
	Cash	180000
	Accumlated depreciation-Machine	52500
	Gain on sale of machine		12500
	Machine		220000
	(TO record disposal of machine)