Question

Disposal of Fixed Asset

Equipment acquired on January 6 at a cost of $422,300, has an estimated useful life of 9 years and an estimated residual value of $55,100.

a. What was the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation?

Year

Depreciation Expense

Year 1

$

Year 2

$

Year 3

$

b. What was the book value of the equipment on January 1 of Year 4?

$

c. Assuming that the equipment was sold on January 3 of Year 4 for $284,900, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

d. Assuming that the equipment had been sold on January 3 of Year 4 for $305,900 instead of $284,900, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

Answer 1

• All working forms part of the answer
• Requirement ‘a’

--Working

A	Cost	$          422,300.00
B	Residual Value	$            55,100.00
C=A - B	Depreciable base	$          367,200.00
D	Life [in years]	9
E=C/D	Annual SLM depreciation	$            40,800.00

--Answer

Year	Depreciation Expense
1	$                                40,800.00
2	$                                40,800.00
3	$                                40,800.00

• Requirement ‘b’

A [given]	Original Cost	$          422,300.00
B = 40800 x 3 years	Accumulated Depreciation of 3 years	$          122,400.00
C = A - B	Book Value on Jan 1 Year 4	$          299,900.00

• Requirement ‘c’

Date	Accounts title	Debit	Credit
3 Jan, year 4	Cash	$          284,900.00
	Accumulated Depreciation - Equipment	$          122,400.00
	Loss on Sale of Equipment	$            15,000.00
	Equipment		$        422,300.00
	(Equipment sold on loss)

• Requirement ‘d’

Date	Accounts title	Debit	Credit
3 Jan, year 4	Cash	$          305,900.00
	Accumulated Depreciation - Equipment	$          122,400.00
	Equipment		$        422,300.00
	Gain on Sale of Equipment		$             6,000.00
	(Equipment sold on loss)