Field Instruments completed the following transactions and events involving ite machinery:?

Question

2004

Jan. 1 Paid $106,600 cash plus $6,400 in sales tax for a new machine. The machine is estimated

to have a six-year life and a $9,800 salvage value.

Dec. 31 Recorded annual straight-line depreciation on the machinery.

2005

Dec. 31 Due to new information obtained earlier in the year, the machine’s estimated useful life was

changed from six to four years, and the estimated salvage value was increased to $13,050.

Recorded annual straight-line depreciation on the machinery.

2006

Dec. 31 Recorded annual straight-line depreciation on the machinery.

Dec. 31 Sold the machine for $25,240 cash.

Required

Prepare journal entries to record these transactions and events.

Answer 1

Jan. 1 Paid $106,600 cash plus $6,400 in sales tax for a new machine. The machine is estimated to have a six-year life and a $9,800 salvage value

Dr  Machinery $113,000

Cr  Cash $113,000

Dec. 31 Recorded annual straight-line depreciation on the machinery

Dr  Depreciation expense $17,200 (i.e. [$113,000-$9,800]/6)

Cr  Accumulated depreciation $17,200

2005

Dec. 31 Due to new information obtained earlier in the year, the machine’s estimated useful life was changed from six to four years, and the estimated salvage value was increased to $13,050. Recorded annual straight-line depreciation on the machinery

Dr  Depn $27,583.33

Cr  Accum. depn. $27,583.33

(Nbv of $95,800 - 13,050 divided by 3 remaining yrs)

2006

Dec. 31 Recorded annual straight-line depreciation on the machinery

Dr  Depn $27,583.33

Cr  Accum. depn. $27,583.33

(Nbv is now $113,000 - $17,200 - $27,583.33 - $27,583.33 = $40,633.34)

Dec. 31 Sold the machine for $25,240 cash

Dr  Cash $25,240

Dr  Loss on disposal of machinery $15,393.34

Dr  Accum. depn. $72,366.66

Cr  Machinery $113,000