Depreciation Expense

Maxwell Corporation wishes to sell a building it has owned for five years. It was purchased for $430,000. Maxwell performed additional modifications to the building, which totaled $45,000. On the proposed date of sale, the accumulated depreciation on the building totaled $75,000. The proposed sales price of the building is $380,000. Maxwell is trying to determine the income statement effect of this transaction. What would be Maxwell’s gain or loss on this sale?

a. $20,000 loss

b. $25,000 gain

c. $50,000 loss

d. $95,000 loss

Springfield Corporation purchases a new machine on March 3, 20X4 for $35,600 in cash. It pays an additional $3,400 to transport and set up the machine. Springfield’s accountant determines that the equipment has no residual value and that the useful life is five years. It is expected to generate 2,400,000 units during its life. Assume Springfield employs the half-year convention.

a. Record the purchase of the machine.

b. Assume that Springfield uses the straight-line method of depreciation. Record depreciation expense for the first two years of the machine’s life.

c. Assume that Springfield uses the double-declining balance method of depreciation. Record depreciation expense for the first two years of the machine’s life.

d. Assume that Springfield uses the units-of-production method of depreciation. During Year 1, the machine produces 600,000 units. During Year 2, the machine produces 578,000 units. Record depreciation expense for the first two years of the machine’s life.