Question

Equipment acquired on January 8 at a cost of $144,930 has an estimated useful life of 14 years, has an estimated residual value of $8,850, and is depreciated by the straight-line method.

a.	What was the book value of the equipment at December 31 the end of the fifth year?
b.	Assuming that the equipment was sold on April 1 of the sixth year for $88,570, journalize the entries to record (1) depreciation for the three months until the sale date, and (2) the sale of the equipment. Refer to the Chart of Accounts for exact wording of account titles.

b. Assuming that the equipment was sold on April 1 of the sixth year for $88,570, journalize the entries to record the following (refer to the Chart of Accounts for exact wording of account titles):

1. Depreciation for the three months until the sale date.

PAGE 1

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Text entry invalid
2

2. The sale of the equipment. Round your final answers to the nearest whole dollar.

PAGE 2

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4

Answer 1

Equipment acquired at cost = $144,930

Estimated useful life = 14 years

Estimated residual value = $8,850

Straight line depreciation is used, so depreciation for one year is (144,930 - 8,850) / 14 years = $9,720

a) Book value of equipment at end of 5th year =  Equipment cost - 5 year depreciation

144,930 - (9,720x5 years) = 96,330

b) Journal entry for depreciation for the 3 months until sale date

On April 1

Depreciation A/c Debit		$2,430
	To accumulated Depreciation A/c		$2,430

The amount 2,430 was calculated as follows : 9,720 x 3 / 12 = 2,430 (as the equipment is only sold for 3 months that year before the sale).

Journal entry at the time of sale of equipment.

First calculate whether the sale was at a loss or gain.

Accumulated depreciation for the 6 years = (9720 x 5) + 2430 = 51,030

Subtract accumulated depreciation from cost to find the book value in the 6th year

144,930 - 51,030 = 93,900

Sold for 88,570 which means it was a loss of 5,330

on April 1

Cash A/c Debit		$88,570
Accumulated depreciation A/c Debit		$51,030
Loss on sale of equipment A/c Debit		$5,330
	To Equipment Asset A/c		$144,930