Charlotte Corporation purchased a machine that had an original cost of $150,000 and an estimated residual value of $15,000. The useful life was expected to be 5 years and straight-line depreciation is used. At the end of 2020, the accumulated depreciation associated with the machine was $54,000. Charlotte disposed of the machine on July 1, 2021.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
- Charlotte Corporation purchased a machine that had an original cost of $150,000 and an estimated residual value of $15,000. The useful life was expected to be 5 years and straight-line
depreciation is used. At the end of 2020, theaccumulated depreciation associated with the machine was $54,000. Charlotte disposed of the machine on July 1, 2021.
Required:
- Prepare the
journal entry assuming the machine was considered obsolete and was discarded. - Prepare the journal entry assuming the machine was sold for $75,000.
- Prepare the journal entry assuming the machine was sold for $92,000.
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