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Compute the depreciation that Chen would record

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Question - On January 1, 2021, S. Chen purchased and placed into service a machine used to manufacture accounting professor action figures for $50,000. Chen expects the machine will be used for 4 years, after which it will have an estimated value (for resale) of $4,000.

Required -

1. Compute the depreciation that Chen would record in 2021, 2022, 2023, and 2024 assuming that Chen opts to use the double declining balance method of depreciation.

2. Suppose that Chen sold the machine on December 31, 2022 for $15,000 cash. Give the journal entry that would be used to record the sale.

3. Instead of selling the machine on December 31, 2022, suppose that Chen was concerned that the machine may have declined in value because of dropping demand for accounting professor action figures. An internal analysis revealed that expected future cash flows from operating the machine totaled $12,000 as of December 31, 2022, and the estimated fair value of the machine on that date was $11,000.

4. Give any entry that would be needed to account for these facts.

5. Briefly explain why an entry would be needed or not to reflect the information about cash flows and fair value.

6. Suppose Chen bought the machine on July 1, 2021 instead of January 1, 2021. What would the depreciation expense be in 2021 if Chen elects to calculate depreciation based on the day the asset is acquired and placed into service.

Reference no: EM132754518

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