Work out the following: XYZ Company purchased a machine...

• Initial Depreciation (Year 1 and Year 2):

  $$\text{Annual Depreciation} = \frac{\text{Cost} - \text{Original Residual Value}}{\text{Original Useful Life}}$$

  $\text{Annual Depreciation} = \frac{\$240,000 - \$40,000}{5 \text{ years}} = \frac{\$200,000}{5 \text{ years}} = \boxed{\$40,000 \text{ per year}}$

• Reassessment at the beginning of Year 3: Book Value at the end of Year 2 (beginning of Year 3) is needed. \text{Accumulated Depreciation (Year 1 & 2)} = \$40,000 \times 2 = \$80,000 $\text{Book Value (beginning of Year 3)} = \$240,000 - \$80,000 = \$160,000$ Revised Depreciable Amount = Book Value (beginning of Year 3) - Revised Residual Value $\text{Revised Depreciable Amount} = \$160,000 - \$20,000 = \$140,000$ Revised Remaining Useful Life = 4 years

• Revised Annual Depreciation (Year 3, Year 4, and Year 5):

  $$\text{Revised Annual Depreciation} = \frac{\text{Revised Depreciable Amount}}{\text{Revised Remaining Useful Life}}$$

  $\text{Revised Annual Depreciation} = \frac{\$140,000}{4 \text{ years}} = \boxed{\$35,000 \text{ per year}}$

The machine was sold on March 31, Year 5, meaning 3 months of depreciation were incurred in Year 5.

$\text{Depreciation Expense for Year 5} = \$35,000 \times \frac{3}{12} = \boxed{\$8,750}$

The book value at the date of sale (March 31, Year 5) is the carrying amount at the end of Year 4 minus the depreciation for the first three months of Year 5.

$\text{Book Value at Date of Sale} = \$90,000 - \$8,750 = \boxed{\$81,250}$

$\text{Gain/Loss on Disposal} = \$90,000 - \$81,250 = \boxed{\$8,750 \text{ Gain}}$

First, record the depreciation for the partial period in Year 5: $\begin{array}{l l r r} \text{Date} & \text{Account} & \text{Debit (\$)} & \text{Credit (\$)} \\ \hline \text{Mar 31, Y5} & \text{Depreciation Expense} & 8,750 & \\ & \quad \text{Accumulated Depreciation} & & 8,750 \\ & \quad \text{(To record depreciation for 3 months)} & & \end{array}$

Next, record the sale of the machine:
The total accumulated depreciation at the date of sale is \150,000$(end of Year 4) +$$8,750$(Year 5 partial) =$$158,750. $$ \begin{array}{l l r r} \text{Date} & \text{Account} & \text{Debit (\)} & \text{Credit ($)} \ \hline \text{Mar 31, Y5} & \text{Cash} & 90,000 & \ & \text{Accumulated Depreciation} & 158,750 & \ & \quad \text{Machine} & & 240,000 \ & \quad \text{Gain on Disposal} & & 8,750 \ & \quad \text{(To record sale of machine)} & & \end{array} $$