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Question (1) On January 1, 2010, XYZ Co purchased equipment for $550,000. XYZ expects the equipment...

Question (1)

On January 1, 2010, XYZ Co purchased equipment for $550,000. XYZ expects the

equipment to remain useful for 5 years and to have a residual value of $50,000. The company

uses the straight line method to depreciate its equipment. The company sold the equipment

on January 1, 2012 for $370,000 for cash.

Required:

Compute the annual Depreciation expense for each of 2010 and 2011.

2A: Record the journal entry for Depreciation in 2011.

Date	Accounts	DR	CR
12/31/2011

2B: Record the journal entry for the sale of the equipment on January 1, 2012.

Date	Accounts	DR	CR
1/1/2012

Expert Solution

Question -1

Cost of Equipment = $ 5,50,000.00

Date of Purchase = 01 jan 2010.

Useful Life = 5 Years

Salvage Value = $ 50,000

Depreciation as per Straight Line Method (SLM)

Depreciation for 2010

= Cost - salavage value / useful life

(550000-50000) / 5 = $ 1,00,000.00

Depreciation for 2011

= (550000- 50000 ) / 5 = $ 1,00,000.00

Question 2 A

Journal Entry for Depreciation in 2011

31/12/2011

Depreciation A/c Dr $ 1,00,000.00

To Equipment A/c Cr $ 1,00,000

(Being Amount Charged as Depreciation)

Question 2B

Journal Entry for sale of Equipment in Jan 1, 2012

01/11/2012

Cash/Bank A/c Dr ... $ 3,70,000.00

Accumulated Depreciation A/c Dr $ 2,00,000.00

To Profit & Loss A/c $ 20,000.00

To Equipment A/c $ 5,50,000.00

(Being Equipment sold and amount of profit on sale is transferred to Profit & loss Account )

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