Question

Ivanhoe Co. purchased equipment on March 1, 2015, for $110,000 on account. The equipment had an estimated useful life of five years, with a residual value of $5,000. The equipment is disposed of on February 1, 2018. Ivanhoe Co. uses the diminishing-balance method of depreciation with a 20% rate and calculates depreciation for partial periods to the nearest month. The company has an August 31 year end.

Record the acquisition of the equipment on March 1, 2015. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Mar. 1

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

Record depreciation at August 31, 2015, 2016, and 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

2015

Date	Account Titles and Explanation	Debit	Credit
Aug. 31

2016

Date	Account Titles and Explanation	Debit	Credit
Aug. 31

2017

Date	Account Titles and Explanation	Debit	Credit
Aug. 31

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

Record the disposal on February 1, 2018, under the following assumptions: (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

1.		It was scrapped with no residual value.
2.		It was sold for $62,720.
3.		It was sold for $52,990.
4.		It was traded for new equipment with a list price of $95,500. Ivanhoe was given a trade-in allowance of $51,500 on the old equipment and paid the balance in cash. Ivanhoe determined the old equipment’s fair value to be $55,140 at the date of the exchange.

	Date	Account Titles and Explanation	Debit	Credit
	2018 Feb. 1
		(To record depreciation)
1.	Feb. 1
2.	Feb. 1
3.	Feb. 1
4.	Feb. 1

Answer 1

Depreciation is calculated for August 31, 2015, 2016, and 2017 is as follows:

Date		$
March 1, 2015	Cost Price	110,000
	Depreciation ($110,000 * 20% *6/12)	11,000
August 31, 2015	Book Value	99,000
	Depreciation ($99,000 * 20%)	19,800
August 31, 2016	Book Value	79,200
	Depreciation ($79,200 * 20%)	15,840
August 31, 2017	Book Value	63,360
	Depreciation ($110,000 * 20% *5/12)	5,280
February 1, 2018	Book Value	$ 58,080

Total Accumulated Depreciation = $11,000 + $19,800 + $15,840 + $5,280

= $51,920

Journal Entries are as follows:

Date	Account Titles and Explanation	Debit ($)	Credit ($)
March 1, 2015	Equipment	110,000
	Account Payable		110,000
	(Recorded the purchase of Equipment)
Aug. 31, 2015	Depreciation Expenses	11,000
	Accumulated Depreciation		11,000
	(Recorded the Depreciation Expenses for 2015)
Aug. 31, 2016	Depreciation Expenses	19,800
	Accumulated Depreciation		19,800
	(Recorded the Depreciation Expenses for 2016)
Aug. 31, 2017	Depreciation Expenses	15,840
	Accumulated Depreciation		15,840
	(Recorded the Depreciation Expenses for 2017)
Feb. 1, 2018	Depreciation Expenses	5,280
	Accumulated Depreciation		5,280
	(Recorded the Depreciation Expenses for 2018)
1) Feb. 1, 2018	Cash	0
	Accumulated Depreciation	51,920
	Loss on sale of Equipment ($110,000 - $51,920)	58,080
	Equipment		110,000
	( Recorded the sale of equipment at loss)
2) Feb. 1, 2018	Cash	62,720
	Accumulated Depreciation	51,920
	Gain on sale of Equipment(62,720 + 51,920 -110,000)		4,640
	Equipment		110,000
3) Feb. 1, 2018	Cash	52,990
	Accumulated Depreciation	51,920
	Loss on sale of Equipment(110,00 - 52,990 - 51,920)	5,090
	Equipment		110,000
	(Recorded the equipment sold at loss)
4) Feb. 1, 2018	Equipment (New) ($44,000 + $55,140 )	99,140
	Accumulated Depreciation	51,920
	Loss on sale of Equipment	2,940
	Cash ($95,500 - $51,500)		44,000
	Equipment		110,000
	(Recorded the Exchange of equipment and cash is paid and loss is incurred on sale of Equipment)