Question

1/ An asset acquired January 1, 2018, for $14,300 with an estimated 10-year life and no residual value is being depreciated in an equipment group asset account that has an average service life of eight years. The asset is sold on December 31, 2019, for $5,400. The entry to record the sale would be:

Multiple Choice

• Cash	5,400
  Accumulated depreciation	8,900
  Equipment		14,300

• Cash	5,400
  Accumulated depreciation	3,575
  Loss on sale of equipment	5,325
  Equipment		14,300

• Cash	5,400
  Loss on sale of equipment	8,900
  Equipment		14,300

• Cash	5,400
  Equipment		5,400

2/ Cutter Enterprises purchased equipment for $99,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $5,100.

Using the straight-line method, depreciation for 2019 and the equipment's book value at December 31, 2019, would be:

Multiple Choice

• $19,800 and $79,200 respectively.

• $18,780 and $61,440 respectively.

• $18,780 and $56,340 respectively.

• $39,600 and $59,400 respectively.

Answer 1

1	Composite Depreciation is calculated by dividing the total depreciable cost of group by the average service life of group asset account. When an asset is sold out of the group then cash is debited with the amount of cash received and asset is credited with the original cost and if there is any difference between the cash and original cost, then that difference is to be adjusted against Accumulated Depreciation account.
	Journal entries :-
	General Journal
	Date	Particulars		Debit		Credit
	Jan 2	Cash	Dr	$5,400
		Accumulated depreciation (Bal Fig)	Dr	$8,900
		Equipment				$14,300
		(To record the sale of equipment out of group)
	Option A is correct
2	Calculation of amount of depreciation for equipment :-
.	Depreciation expense to be recognized under Straight Line Depreciation Method :-
		Depreciation Expense	=	Depreciable Amount
				Useful Life
		Depreciable Amount	=	Cost - Salvage value
		Cost	=	$99,000
		Salvage value (residual value)	=	$5,100
		Useful life	=	5	years
		Depreciable Amount	=	$99,000	-	$5,100
			=	$93,900
		Depreciation Expense	=	$93,900
				5 years
			=	$18,780	per year
	Calculation of equipment's book value at December 31, 2019:-
		Equipment (At cost)		$                          99,000
	Less:	Accumulated Depreciation for 2 years (18780*2)		$                          37,560
		Equipment's book value at December 31, 2019		$                          61,440
	Option B is correct ($18780 and $61440)

Feel free to ask any clarification, if required. Please provide feedback by thumbs up, if satisfied. It will be highly appreciated. Thank you.