Question

Company ABC bought an equipment for $50,000 in 2015, with useful life of 5 years $5,000 residual value amortized using straight-line method.
a) Assume, this equipment was sold June 30th, 2016 for $40,000. Please prepare All related JEs for 2015, 2016 (tax,amortization and sale of asset)

Answer 1

Account Titles and Explanation	Debit ($)	Credit ($)
Depreciation Expenses A/c	9,000
To Accumulated Depreciation – Equipment A/c		9,000
[Journal Entry to record the Depreciation Expenses for the year 2015]

Account Titles and Explanation	Debit ($)	Credit ($)
Depreciation Expenses A/c	4,500
To Accumulated Depreciation A/c		4,500
[Journal Entry to record the Depreciation Expenses for the year 2016]

Account Titles and Explanation	Debit ($)	Credit ($)
Cash A/c	40,000
Accumulated Depreciation - Equipment A/c	13,500
To Equipment A/c		50,000
To Gain on sale of Equipment A/c		3,500
Journal Entry to record the sale of Equipment]

Depreciation under straight line method

Depreciation Expenses = [Cost – Residual Value] / Useful Life

Depreciation Expenses for the year 2015

= [$50,000 – 5,000] / 5 years

= $9,000 per year

Depreciation Expenses for the year 2016

= [ ($50,000 – 5,000) / 5 years] x 6 Months/12 Months

= $9,000 x 6/12

= $4,500

Book Value of the Equipment as on June 30^th 2016

= Cost – Accumulated Depreciation

= $50,000 – 9,000 – 4,500

= $36,500

Gain on sale of Equipment

= Sale Proceeds – Book Value of the Equipment

= $40,000 – 36,500

= $3,500