Question

Hillman Janitorial Services, Inc. purchased a new floor steam cleaner on July 31, 2017. Hillman paid $7,000 cash. The company expects the new floor steam cleaner to be useful for 5 years after which time the company expects to sell it for $500. The company has a December 31 year end and would like to use straight-line depreciation.

Required:

Record the journal entry for the purchase of the new floor steam cleaner.

Record the required year-end adjustment

On March 31, 2018, Hillman sold the floor steam cleaner. Record depreciation up to the date of the sale.

Assume that Hillman sold the floor steam cleaner for:

$6,600 cash, record the journal entry for the sale

$3,300 cash, record the journal entry for the sale

Answer 1

Hillman Janitorial Services

Journal Entries

Date	Items	Debit	Credit
July 31,2017	Steam cleaner	7,000
	To Cash		7,000
	(For the purchase of cleaner)
December 31,2017	Depreciation expenses	542
	To accumulated depreciation		542
	(For the depreciation expense from the date of purchase to year end)
March 31,2018(a)	Cash	6,600
	Accumulated depreciation	867
	To Steam cleaner		7,000
	To Gain on sale of steam cleaner		467
	(For the sale of steam cleaner at $6,600)
March 31,2018(b)	Cash	3,300
	Accumulated depreciation	867
	Loss on sale of steam cleaner	2,833
	To steam cleaner		7,000
	(For the sale of steam cleaner at $3,300)

Calculation for depreciation:-

Straight - line method= (Cost price - residual value)/ estimated Life

=(7,000 - 500)/5 = $1,300(For one year)

But from the date of purchase (July 31,2017)to Company year end (December 31,2017)its 5 months, so adjustment for year end depreciation expense is:-

= ( 1,300×5)/12=$541.67 or $ 542

Thus Calculation of depreciation from (January 1,2018) to the date of sale (March 31,2018)for 3 months is:-

=(1,300×3)/12=$325

The accumulated depreciation is:-

December 31,2017	$ 542
March 31,2018	$ 325
Total	$ 867