In 2013, Cariboo Ltd. pur chased a piece of specialized machinery for $1,500,000. The machinery was estimated to have a seven-year life and it was depreciated on a straight line basis. Residual value was estimated to be $100,000. At the beginning of 2018 (after five years of depreciation was recorded), the machinery was sold for $425,000 in cash. What was the gain or loss on the sale? What journal entry would be made to record the sale of the machinery?
Suppose that instead Cariboo used the declining-balance method of depreciation using a rate of 25 percent. What would be the gain or loss on the sale of the machinery when it was sold in 2018? What journal entry would be needed to record the sale?
Explain the difference between the two depreciation approaches? What is the economic difference between the two? What would be the impact on cash from operations of the two methods of depreciating the machinery?

  • CreatedFebruary 26, 2015
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