Question

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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Answer 1

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