Question

Entries for Sale of Fixed Asset

Equipment acquired on January 8 at a cost of $160,090, has an estimated useful life of 18 years, has an estimated residual value of $7,450, and is depreciated by the straight-line method.

a. What was the book value of the equipment at December 31 the end of the fourth year?
$

b. Assuming that the equipment was sold on April 1 of the fifth year for 118,680.

1. Journalize the entry to record depreciation for the three months until the sale date. Round your answers to the nerest whole dollar if required.

2. Journalize the entry to record the sale of the equipment. If an amount box does not require an entry, leave it blank. Do not round intermediate calculations.

Answer 1

(a).

Book value of the equipment at December 31 the end of the fourth year = $126170

Explanation;

Cost of equipment = $160090

Residual value = $7450

Useful life = 18 years

Per year depreciation ($160090 – $7450) / 18 = $8480

Hence accumulated depreciation for 4 years (4 * $8480) = $33920

Book value at December 31 the end of fourth year ($160090 - $33920) = $126170

(b).

1.

Date	Accounts Title & Explanation	Debit	Credit
April 1	Depreciation expense-equipment	$2120
	Accumulated Deppreciation-equipment		$2120
	(To record depreciation expense for 3 months)

Working Note;

Annual depreciation = $8480

Depreciation for 3 months ($8480 * 3 / 12) = $2120

2.

Date	Accounts Title & Explanation	Debit	Credit
April 1	Cash	$118680
	Accumulated depreciation-equipment	$36040
	Loss on sale	$5370
	Equipment		$160090
	(To record sale of equipment)

Working Note;

1.

Annual depreciation = $8480

Accumulated depreciation at the time of sale ($8480 * 4) + $2120

= $36040

2.

Loss on sale of equipment will be calculated as follow;

Sale price + Accumulated depreciation – cost

$118680 + $36040 - $160090 = $5370