Question

York Instruments completed the following transactions and events involving its machinery.

2016

Jan. 1 Paid \(107,800 cash plus \)6,470 in sales tax for a new machine. The machine is estimated to have a six-year life and a \(9,720 salvage value.

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

2017

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 \)14,345. Recorded annual straight-line depreciation on the machinery.

2018

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

31 Sold the machine for $25,240 cash. Required Prepare journal entries to record these transactions and events.

Short answer

Depreciation in 2016 is$17,425

Depreciation in 2017 is$27,500

The loss in 2018 is $16,605

Step-by-step solution

Journal entries for 2016

Jan 1	Machine	$114,270
	Cash		$114,270
	Record machine ($107,800+$6,470)

Dec 31	Depreciation	$17,425
	Accumulated depreciation-machine		$17,425
	Record depreciation

Note:

$$\begin{gathered} \mathit{D}\mathit{e}\mathit{p}\mathit{r}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{=}\frac{\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{-}\mathbf{s}\mathbf{a}\mathbf{l}\mathbf{v}\mathbf{a}\mathbf{g}\mathbf{e}}{\mathbf{u}\mathbf{s}\mathbf{e}\mathbf{f}\mathbf{u}\mathbf{l}\mathbf{}\mathbf{l}\mathbf{i}\mathbf{f}\mathbf{e}} \\ Depreciation=\frac{\$114,270-\$9,720}{6} \\ Depreciation=\frac{\$104,550}{6}=\$17,425 \end{gathered}$$

Journal entries for 2017

Dec 31	Depreciation	$27,500
	Accumulated depreciation-machine		$27,500
	Record depreciation

Note:

$$\begin{gathered} \mathit{d}\mathit{e}\mathit{p}\mathit{r}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{=}\frac{\mathbf{b}\mathbf{e}\mathbf{g}\mathbf{i}\mathbf{n}\mathbf{n}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{}\mathbf{b}\mathbf{o}\mathbf{o}\mathbf{k}\mathbf{}\mathbf{v}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}\mathbf{-}\mathbf{r}\mathbf{e}\mathbf{v}\mathbf{i}\mathbf{s}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{s}\mathbf{a}\mathbf{l}\mathbf{v}\mathbf{a}\mathbf{g}\mathbf{e}\mathbf{}\mathbf{v}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}}{\mathbf{r}\mathbf{e}\mathbf{m}\mathbf{a}\mathbf{i}\mathbf{n}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{}\mathbf{r}\mathbf{e}\mathbf{v}\mathbf{i}\mathbf{s}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{u}\mathbf{s}\mathbf{e}\mathbf{f}\mathbf{u}\mathbf{l}\mathbf{}\mathbf{l}\mathbf{i}\mathbf{f}\mathbf{e}} \\ depreciation=\frac{\left[\left(\$114,270-\$17,425\right)-\$14,345\right]}{3} \\ depreciation=\frac{\$82,500}{3}=\$27,500 \end{gathered}$$

Journal entries for 2018

Dec 31	Depreciation	$27,500
	Accumulated depreciation-machine		$27,500
	Record depreciation

Dec 31	Cash	$25,240
	Loss in the sale	$16,605
	Machine		$41,845
	Record for sale of machine

Note:

$\begin{array}{rcl}bookvalueinthebegining& =& \$96,845-\$27,500=\$69,345\\ bookvalueatteend& =& \$69,345-\$27,500=\$41,845\\ profitorlossinthesale& =& bookvalue-sellingprice\\ \mathbf{\$}\mathbf{41}\mathbf{,}\mathbf{845}\mathbf{-}\mathbf{\$}\mathbf{25}\mathbf{,}\mathbf{240}& \mathbf{=}& \mathbf{\$}\mathbf{16}\mathbf{,}\mathbf{6059}\left(loss\right)\end{array}$