Howarth Manufacturing Company purchased equipment on June 30, 2017, at a cost of $105,000. The residual...

Howarth Manufacturing Company purchased equipment on June 30, 2017, at a cost of $105,000. The residual value of the equipment was estimated to be $9,000 at the end of a five-year life. The equipment was sold on March 31, 2021, for $27,000. Howarth uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the asset is in service.

Required:
1. Prepare the journal entry to record the sale.
2. Assuming that Howarth had instead used the double-declining-balance method, prepare the journal entry to record the sale.

Expert Solution

Answer 1

Journal Entry

	Dr	Cr
Cash Account	27000
Equipment Account		105000
Accumulated Depreciation	72000
Losson sales of fixed assets Account	6000

Notes 1.	If there is a loss on sale
	Debit cash for the amount Received
	Debit all accumulated depreciation
	Credit the fixxed assets
	and debit the loss on sales of fixed Assets

	Accumulated Depreciation = (Cost of asset- resiual value)/Total Life period/ Total period used
	Accumulated Depreciation =( 105000-9000)/60*45= 72000

Answer 2

Journal Entry

	Dr	Cr
Cash Account	27000
Equipment Account		105000
Accumulated Depreciation	88670.4
Gain on sales of fixed assets Account		10670.4

Calculation Of Doble Declaining Depreciation:	A	B	C	D = (ABC/12 months)
Year	Begining Amount	Double Declaining rate	Used Months	Doble Declaining depreciation
2017	105000	40%	6	21000
2018	84000	40%	12	33600
2019	50400	40%	12	20160
2020	30240	40%	12	12096
2021	18144	40%	3	1814.4
	Total			88670.4

Notes 2.	Doble Declaining rate = 2 x Straight line Depreciation Percentage
	Doble Declaining rate = 2 x 20 =40%

	Straight line Depreciation Percentage =( Depreciation under straight line method per year/assets Depreciable value ) x100
	Straight line Depreciation Percentage= 19200/96000*100 =20%
	Assets Depreciable value = Cot of Assets- residual Vale
	Assets Depreciable value =105000-9000= 96000

ekkarill92 answered 1 year ago

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