As part of a renovation of its showroom, O'Keefe Auto Dealership sold furnitureand fixtures that were...

As part of a renovation of its showroom, O'Keefe Auto Dealership sold furnitureand fixtures that were eight years old for $3,500 in cash. The assets had beenpurchased for $40,000 and had been depreciated using the straight-line methodwith no residual value and a useful life of ten years.

a. Prepare a journal entry to record this transaction.

b. Show how the sale of the furniture and fixtures affects the balance sheet andincome statement using the financial statement effects template.

Solutions

Expert Solution

furniture and fixtures = $40,000 depreciation for 1 year = value of asset/useful life of asset

= $40,000/10 = $4000 per year

depreciation for 8 years = $4,000 * 8 = $32,000

value of asset after 8 years = $40,000 - $32,000 = $8,000 cash received on sale = $3,500

loss on sale of furniture = value of asset - cash received on sale = $8,000 - $3,500 = $4,500 (to be transferred to P&L a/c)

journal entry: Cash a/c Dr $3,500 P&L a/c(loss on sale)Dr $4,500

To Furniture and fixtures a/c $8,000

effect on balance sheet and income statement: the furniture and fixtures on the assets side will show zero balance as whole of the asset is sold, and cash balance on the assets side will increase by $3,500 as cash received on sale of furniture and fixtures. the profit and loss account will be debited $4,500 as loss on sale of furniture and fixtures and this reduces the profit in the profit and loss account.

ekkarill92 answered 2 months ago

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