On January 1, 2014, Stark Company purchased equipment for a total cost of $155,000. The equipment...

On January 1, 2014, Stark Company purchased equipment for a total cost of $155,000. The equipment had an estimated useful life of 7 years and an estimated residual value of $43,000. Straight-line depreciation was used. On September 1, 2020, Stark Company disposes of the equipment. Required: Prepare the journal entry to record the disposition on September 1, 2020 assuming the equipment was sold for $39,000 cash. Prepare the journal entry to record the disposition on September 1, 2020 assuming the equipment was exchanged for $30,000 cash and a machine valued at $30,000

Solutions

Expert Solution

Journal Entries:

Case i) If the Equioment is Sold for $39000 cash

Book Value of Equipment on 30 Sep 2020 = $47000

Equiment is Sold for $39,000

Loss on Sale of Equipment = $47000- $39000 =$8000

Journal entry

Date	General Journal	Debit	Credit
30/09/20	Cash	39000
	Loss on Sale of Equipment	8000
	Accumulated Depreciation	108000
	Equipmet		155000

Case ii) Equipment exchanged for $30000 cash and Machine value $30000

Book value of Equipment = $47000

Gain on Exchange of Equipment = $60000 - $47000= $13000

Date	General Journal	Debit	Credit
30/09/20	Cash	30000
	Machine	30000
	Accumulated Depreciation	108000
	Equipmet		155000
	Gain on Exchange of Equipment		13000

WORKINGS:

Depreciation under Straight line method

	depreciation = (Cost of the asset - Salvage Value)/ Useful life of asset
	= ($155000 - $43000)/7
	=$112000 / 7
	=$16000 per year
Depreciation expense per year = $16000

Year	Opening Carrying Amount	Depreciation Expense	Accumuated Depreciation	Book value
31/12/14	1,55,000	16,000	16,000	1,39,000
31/12/15	1,39,000	16,000	32,000	1,23,000
31/12/15	1,23,000	16,000	48,000	1,07,000
31/12/17	1,07,000	16,000	64,000	91,000
31/12/18	91,000	16,000	80,000	75,000
31/12/19	75,000	16,000	96,000	59,000
30/09/20	59,000 (9 months Dep)	12,000	1,08,000	47,000

ekkarill92 answered 1 year ago

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