(Learning Objectives 3, 4: Compute depreciation; record a gain or loss on disposal)On January 1, 2017, Lincoln Manufacturing purchased a machine for $930,000. The companyexpected the machine to remain useful for eight years and to have a residual value of $110,000.Lincoln Manufacturing uses the straight-line method to depreciate its machinery. LincolnManufacturing used the machine for four years and sold it on January 1, 2021, for $250,000.1. Compute accumulated depreciation on the machine at January 1, 2021 (same as December 31,2020).2. Record the sale of the machine on January 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.
(Learning Objectives 3, 4: Compute depreciation; record a gain or loss on disposal)
On January 1, 2017, Lincoln Manufacturing purchased a machine for $930,000. The company
expected the machine to remain useful for eight years and to have a residual value of $110,000.
Lincoln Manufacturing uses the straight-line method to
Manufacturing used the machine for four years and sold it on January 1, 2021, for $250,000.
1. Compute
2020).
2. Record the sale of the machine on January 1, 2021.
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