In: Accounting
Sabel Co. purchased assembly equipment for $836,000 on January 1, 2018. Sabel’s financial condition immediately prior to the purchase is shown in the following horizontal statements model.
The equipment is expected to have a useful life of 380,000 miles and a salvage value of $38,000. Actual mileage was as follows:
2018 | 74,000 |
2019 | 79,000 |
2020 | 60,000 |
2021 | 54,000 |
2022 | 28,000 |
Required
Answer:
A-
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B.
C.
Assume that Sabel sold the equipment at the end of the fifth year for $40,400. Calculate the amount of gain or loss on the sale.
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Depriciation charge per year = (purchase cost of equipment - salvage value)*Actual mileage/useful life of 38000 miles
where purchase cost $ 836000 & estimated salvage value $38000
a. Computation of depreciation for each of the five year -
year | Milage | Calculation | Dep./year |
2018 | 74000 | (836000-38000)*74000/380000 | 155400 |
2019 | 79000 | (836000-38000)*79000/380000 | 165900 |
2020 | 60000 | (836000-38000)*60000/380000 | 126000 |
2021 | 54000 | (836000-38000)*54000/380000 | 113400 |
2022 | 28000 | (836000-38000)*28000/380000 | 58800 |
295000 | 619500 |
(b) Journal Entries of revenue recognised, depreciation & equipment purchased -
Journal | Dr | Cr |
Equipment A/c | 836000 | |
To Accounts payable | 836000 | |
(equipment purchased) | ||
Cash A/c | 248000 | |
To Service revenue | 248000 | |
(Revenue recognition) | ||
Depriciation A/c | 155400 | |
To equipment | 155400 | |
(Depriciation recorded) |
C. Calculation of the amount of gain or loss on the sale -
Book value of the equipment at the end of 5th year = purchase cost - depreciation of 5 years
= 836000 - 619500
= 216500
Sale value of equipment at the end of 5th year = 40400
Gain /(loss) on sale of equipment = Sale value of equipment - book value of equipment at the end of 5th year
= 40400 - 216500
= -176100 or (176100)
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