Q. Baoshan Energy Ltd. in Shanghai, China, has a tank lorry that costed the company ¥300,000...

Q. Baoshan Energy Ltd. in Shanghai, China, has a tank lorry that costed the company ¥300,000 when it was purchased on January 1, 2016. The vehicle has an estimated useful life of 10 years and no residual value. Baoshan uses straight-line method of depreciation on equipment. Baoshan decides to dispose the tank lorry and sells it to Pudong Oil & Gas Co. on August 31, 2020. (Currency in Chinese yuan, ¥)

Instructions:

A. What journal and T-account entries would Baoshan Energy make to record the sale of the tank lorry for ¥170,000 cash on August 31, 2020?

B. What journal and T-account entries would Baoshan Energy make to record the sale of the tank lorry for ¥100,000 cash on August 31, 2020?

Solutions

Expert Solution

Cost of lorry = 300,000

Useful life = 10 years.

Residual value = 0

Annual depreciation = (Cost - residual value)/Useful life = 300000/10 = 30,000

Monthly depreciation = 30000/12 = 2,500

From January 1, 2016 to August 31, 2020, Baoshan Energy Ltd has used the lorry for 4 years and 8 months,.or 56 months

Total depreciation = 2500*56 = 140,000

Book value of lorry = 300,000 - 140,000 = 160,000

In case A, sale value of lorry is 170,000

Therefore, profit on sale of lorry = 170,000 - 160,000 = 10,000

Journal entry:

Date	Account name and description	Debit	Credit
August 31, 2020	Cash	170000
	Tank Lorry		160000
	Profit on sale of lorry		10000

In T Accounts, Cash will be debited 170,000, Tank Lorry will be credited 160,000, and profit on sale of lorry will be credited 10,000.

In case B, sale value of lorry is 100,000

Therefore, loss on sale of lorry = 160,000 - 100,000 = 60,000

Journal entry:

Date	Account name and description	Debit	Credit
August 31, 2020	Cash	100,000
	Loss on sale of lorry	60,000
	Tank Lorry		160,000

In T Accounts, Cash will be debited 100,000, Tank Lorry will be credited 160,000, and loss on sale of lorry will be debited 60,000.

Hope this helps :)

ekkarill92 answered 1 year ago

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