Question

Howarth Manufacturing Company purchased equipment on June 30, 2017, at a cost of $125,000. The residual value of the equipment was estimated to be $8,000 at the end of a five-year life. The equipment was sold on March 31, 2021, for $34,000. 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. Please help me make the journal entry to record the sale. 2. With the assumption that Howarth had instead used the double-declining-balance method, prepare the journal entry to record the sale. Thanks!

Answer 1

Required 1

Straight line depreciation expense = (cost - slavage value) / years

= ($125,000 - $8,000) /

= $23,400

Years	Depreciation expense
2017	($23,400 * 6/12) $11,700
2018	$23,400
2019	$23,400
2020	$23,400
2021	($23,400 * 3/12) $5,850

Accumulated depreciation = $11,700 + $23,400 + $23,400 + $23,400 + $5,850

= $87,750

Date	General Journal	Debit	Credit
March 31, 2021	Cash	$34,000
	Accumulated depreciation	$87,750
	Loss on sale of Equipment	$3,250
	...Equipment		$125,000
	(To record the sale of equipment)

Required 2

Depreciation rate = Straight line depreciation rate * 2

= (100 / 5) * 2

= 40%

Year	Depreciation expense
2017	(40% * 6/12 * $125,000) $25,000
2018	[($125,000 - $25,000) * 40%] $40,000
2019	[($125,000 - $25,000 - $40,000) * 40%] $24,000
2020	[($125,000 - $25,000 - $40,000 - $24,000) * 40%] $14,400
2021	[($125,000 - $25,000 - $40,000 - $24,000 - $14.400) * 40% * 3/12] $2,160

Accumuated depreciation = $25,000 + $40,000+ $24,000 + $14,400 + $2,160

= $105,560

Date	General Journal	Debit	Credit
March 31, 2021	Cash	$34,000
	Accumulated depreciation	$105,560
	...Gain on sale of Equipment		$14,560
	...Equipment		$125,000
	(To record the sale of equipment)