Question

Blossom Company had the following assets on January 1, 2017.

Item		Cost		Purchase Date		Useful Life (in years)		Salvage Value
Machinery		$52,540		Jan. 1, 2007		10		$ 0
Forklift		22,200		Jan. 1, 2014		5		0
Truck		24,720		Jan. 1, 2012		8		2,224

During 2017, each of the assets was removed from service. The machinery was retired on January 1. The forklift was sold on June 30 for $8,880. The truck was discarded on December 31.

Journalize all entries required on the above dates, including entries to update depreciation, where applicable, on disposed assets. The company uses straight-line depreciation. All depreciation was up to date as of December 31, 2016. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Depreciation per year

FORMULA = (Cost of the asset - Salvage Life)/Useful life

1.) Machinery = $52,450/10 = $5,245 per year

2.) Forklift = $22,200/5 = $4,440 per year

3.) Truck = ($24,720 - $2,224)/8 = $2,812 per year

Total accumulated depreciation till 2016

FORMULA = Depreciation per year * Number of year since purchase

1.) Machinery = $5,245 * 10 years = $52,450

2.) Forklift = $4,440 * 3 years = $13,320

3.) Truck = $2,812 * 5 years = $14,060

Depreciation during 2017

1.) Machinery - Nil

2.) Forklift = $4,440 * 1/2 (as it is sold on June 30) = $2,220

3.) Truck = $2,812

JOURNAL ENTRIES :-

January 1st , 2017

1.) Accumulated Depreciation A/c Dr $79,000

To Machinery A/c $79,000

(to record the Accumulated depreciation at the time of the retirement of the machinery)

30th June, 2017

2.) Depreciation A/c Dr. $2,220

To Accumulated Depreciation A/c $2,220

(to record the depreciation expense for the forklift for the 6 months upto June 30,2017)

GAIN on SALE

Sale price of the asset - carrying value of the asset

= $8,880 - ($22,200 - $13,320 - $2,220)

= $8,880 - $6,660

= $2,220

3.) Bank A/C Dr. $8,880

To Forklift A/c $6,660

To Gain on Forklift A/c $2,220

(To record the sale of Forklift and its relevant gain)

December 31, 2017

4.) Depreciation A/c Dr. $2,812

To Accumulated Depreciation A/c $2,812

(To record the depreciation on Truck for the 2017 year)

Book Value of truck at the date of discarding = $24,720 - $2,812 - $14,060 = $7,848

Scrap Value = $2,224 - This is the amount we will get back.

Loss on Truck = Scrap Value - (Cost price - Accumulated Depreciation)

Loss on Truck = $2,224 - ($24,720 - $16,872)

Loss on Truck = $5,624

Bank a/c Dr. $2,224

Accumulated Depreciation A/c Dr. $16,872

Loss on Truck A/c Dr. $5,624

To Truck A/c $24,720

(To record the receipt, related depreciation and the loss on the disposal of the truck)