Question

In: Accounting

1/ An asset acquired January 1, 2018, for $14,300 with an estimated 10-year life and no...

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.

Solutions

Expert Solution

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.


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