Question

On January​ 1,

20142014​,

Small RockSmall Rock

Brewery purchased a van for

$ 37 comma 000$37,000.

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expects the van to have a useful life of

eighteight

years and a residual value of

$ 4 comma 000$4,000.

The depreciation method used was​ straight-line. On December​ 31,

20172017​,

the van was sold for

$ 21 comma 000$21,000

cash.

1. What was the carrying amount of the van at the date of​ sale?

2. Record the sale of the van on December​ 31,

20172017.

Answer 1

Based on the information available in the question, we can answer as follows:-

Requirement 1:-

Carrying value of the van at the date of sale = Cost of the asset - Accumulated depreciation

Depreciation per year = (Cost of the asset - Salvage value)/Estimated life of the asset

Depreciation per year = ($37,000 - $4,000)/8 years

Depreciation per year = $33,000/8 years

Depreciation per year = $4,125 per year

Depreciation for the period January 1, 2014 to December 31, 2017 = $4,125 per year * 4 years = $16,500

Accumulated Depreciation = $16,500

Carrying value at the date of sale = $37,000 - $16,500

Carrying value at the date of sale = $20,500

Requirement 2:-

Sale of van on december 31, 2017 = $21,000

Gain on sale = Sale value of the van - Carrying value of the van -

Gain on Sale = $21,000 - $20,500

Gain on sale = $500

Journal entry to record the sale of the van

	Particulars	Amount	Amount
December 31, 2017	Cash A/c Dr.	21,000
	Accumulated Depreciation A/c Dr.	16,500
	To Gain on sale of Van A/c Dr.		500
	To Van A/c		37,000
	(To record the sale of van)