In: Accounting
Entries for Sale of Fixed Asset
Equipment acquired on January 8 at a cost of $128,910 has an estimated useful life of 14 years, has an estimated residual value of $7,950, 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. Assume that the equipment was sold on April 1 of the fifth year for $86,090.
1. Journalize the entry to record depreciation for the three months until the sale date. If an amount box does not require an entry, leave it blank. Round your answers to the nearest whole dollar if required. (Accounts Payable, Accumulated Depreciation-Equipment, Cash, Depreciation Expense-Equipment, Equipment, Equipment Expense)
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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. (Accounts Payable, Cash, Depreciation Expense-Equipment, Equipment, Gain on Sale of Equipment)
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Solution
Given in Question,
Life of asset = 14 years
Purchase Price of asset = $128,910
Salvage Value of Asset = $7,950
A. Calculation of Book value of Asset at end of 4th year
Annual Depreciation on the Asset = (Cost of asset - Salvage Value) / Estimated life of Asset
= ($128,910 - $7,950) / 14
= $8,640
Book Value of the Asset = Cost of the asset - Accumulated Depreciation
Here,
Accumulated Depreciation = Annual Depreciation * No of Years lapsed
= $8,640 * 4
= $34,560
Hence,
Book value of asset (at end of 4th year) = $128910 - $34560
= $94,350
B. (1) Journal entries for Depreciation of 3 months
Calculation of 3 month Depreciation = Annual Depreciation * 3/12
= $8,640 * 3/12
= $2,160
Particulars | Debit | Credit |
Depreciation Expense-Equipment | 2,160 | |
Accumulated Depreciation-Equipment | 2,160 |
B. (2) Journal Entry for sale of Equipment
Particulars | Debit | Credit |
Cash | 86,090 | |
Accumulated Depreciation-Equipment | 36,720 | |
Loss on Sale of Equipment | 6100 | |
Equipment | 128,910 |
Sale Price of Asset (Given) = $86,090
Total Accumulated Depreciation = Accumulated Depreciation for 4 years + Accumulated Depreciation for 3 months
= $34,560 + $2,160
= $36,720
Gain (+) / Loss(-) on Sale of Asset = Sale Price of Asset - (Cost of Asset - Accumulated Depreciation)
= $86,090 - ($128,910 - $36,720)
= -6100