Question

On September 1, 2011, a company purchased a weaving machine for $239,800. The machine has an estimated useful life of 8 years and an estimated residual value of $17,800. Additionally, it is estimated that the machine would produce 740,000 bolts of woven fabric over its useful life. The company ended up selling the machine in 2018 after 1 month of use. The following budgeted and actual activity levels were provided to support your work: Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 total Budgeted Bolts Budgeted cumulative 20,000 20,000 100,000 120,000 100,000 220,000 100,000 320,000 100,000 420,000 85,000 505,000 85,000 590,000 85,000 675,000 65,000 740,000 740,000 Actual Bolts actual cumulative 35,000 35,000 115,000 150,000 116,000 266,000 119,000 385,000 120,000 505,000 117,000 622,000 112,000 734,000 9,000 743,000 n.a. 743,000

Answer 1

First calculate book value of machine on the sales date.

Book value = Original cost - accumulated depreciation

Original cost = $239800

Accumulated depreciation under units of production

Calculate depreciation per bolt produced.

Depreciation expense per bolt = (Original cost - Residual Value) / Number of bolts estimated to produce

Depreciation expense per bolt = ($239800 - $17800) / 740000 bolts

= $0.30 per bolt

Accumulated Depreciation at the date of sales = Depreciation expense per bolt * Number of bolts Actually produced in the year assets life that used.

Accumulated Depreciation at the date of sales = $0.30 * 743000 bolts  = $222900

Book value = 239800 - 222900 = $16900

Proceeds from sales of machine = $18200

The proceeds from sales are higher than the Book value of machine, so different is record as gain from proceeds of machine.

Ans:- E. a $1300 gain