On January 1, 2016, Horton Inc. sells a machine for $23,000. The machine was ori
ID: 2504400 • Letter: O
Question
On January 1, 2016, Horton Inc. sells a machine for $23,000. The machine was originally purchased on January 1, 2014 for $40,000. The machine was estimated to have a useful life of 5 years and no residual value. Horton uses straight-line depreciation.
On January 1, 2016, Horton Inc. sells a machine for $23,000. The machine was originally purchased on January 1, 2014 for $40,000. The machine was estimated to have a useful life of 5 years and no residual value. Horton uses straight-line depreciation.
Explanation / Answer
Hi,
Please find the detailed answer as follows:
Annual Depreciation = Initial Cost/Estimated Life = 40000/5 = 8000 per Year
Depreciation for the Period 1 January 2014 to 31 December 2015 = 2*8000 = 16000
Journal Entry:
Cash Dr. 23000
Accumulated Depreciation Dr. 16000
Loss on Sale of Machinry (40000 - 16000 -23000) Dr. 1000
Machinery Cr. 40000
(Being Machine Sold for Cash)
Notes:
Loss on Sale of Machine = Sales Value - Book Value = 23000 - (40000 - 16000) = -1000
Thanks.