On January 1, 2010, Mulligan Co.began using the composite depreciation method.There were three machines to consider, as follows: $\begin{array}{lrrl}
&&\text { Residual }\
\text { Assset } &\text { Cost }&\text { Value} &\text { Life }\
\text { A } & \$ 20,000 & \$ 2,000 & 6 \text { years } \
\text { B } & 15,000 & 3,000 & 3 \text { year } \
\text { C } & 5,000 & 1,000 & 4 \text { year }
\end{array}$ At the end of the second year, Machine B was sold for $8, 200.In the entry to record the sale, there should be a
A)$1, 200 debit to Gain on Sale of Machine
B)$6, 800 debit to Accumulated Depreciation
C)$6, 800 debit to Loss on Sale of Machine
D)$8, 000 debit to Accumulated Depreciation

Question

Quizplus · Accepted Answer

To calculate the correct entry, we first need to determine the composite depreciation rate and then apply it to find the accumulated depreciation for Machine B at the time of sale. The composite depreciation rate is calculated based on the total cost, total residual value, and total useful life of all assets. Total cost of all machines = $20,000 + $15,000 + $5,000 = $40,000Total residual value = $2,000 + $3,000 + $1,000 = $6,000Total depreciable amount = $40,000 - $6,000 = $34,000Total years = (6 + 3 + 4) = 13 machine-yearsComposite depreciation rate per year = Total depreciable amount / Total years = $34,000 / 13 = $2,615.38 per machine-yearFor Machine B (3-year life):Annual depreciation = $2,615.38Depreciation for 2 years (since it was sold at the end of the second year) = $2,615.38 * 2 = $5,230.76However, the correct answer involves recognizing the accumulated depreciation for Machine B at the time of sale. Since the composite method spreads the depreciation evenly and does not necessarily apply directly to each individual asset in this manner, the calculation above does not directly lead to the correct answer option. The composite method treats the group of assets as a single entity for depreciation purposes.Given the options provided and the explanation above, there seems to have been a misunderstanding in the calculation process for the composite method. The correct approach involves calculating the book value of the asset at the time of sale and comparing it to the sale price to determine if there was a gain or loss. However, without the exact composite depreciation applied to Machine B, we cannot directly calculate the accumulated depreciation from the information given.The correct answer, based on the options provided and typical accounting practices, would involve recognizing the accumulated depreciation correctly to find the book value of Machine B at the time of sale. However, the explanation provided does not match the typical process for calculating this using the composite method, as it would require a total view of all assets' depreciation, not calculated individually. Given the misunderstanding in the calculation explanation, the correct choice should involve recognizing the need for an accurate calculation of accumulated depreciation for the sale of Machine B, but the detailed calculation provided does not align with the composite method's principles. Therefore, the response indicates a need for clarification in the application of the composite depreciation method.

On January 1, 2010, Mulligan Co At the End of the Second Year, Machine B Was