Southwest Airlines sold flight equipment for $15 million cash at the end of its 7th year...

Southwest Airlines sold flight equipment for $15 million cash at the end of its 7th year of use. The flight equipment originally cost $21 million and was depreciated using the straight-line method with $1 million residual value and a useful life of 20 years.

(a) Calculate the amount of depreciation expense recorded at the end of the 7th year to bring depreciation up to date.

(b) After updating the depreciation, what is the equipment’s book value at the end of 7th year?

Solutions

Expert Solution

Accumulated Depreciation at the end of 7th year

$ 7,000,000.00

($ 1000000 x 7)

Workings:

Cost of the equipment	$ 21,000,000.00
Residual Value	$ 1,000,000.00
Depreciable cost	$ 20,000,000.00
Useful Life	20	years
Depreciation Expense per year	$ 1,000,000.00

Book value of equipment at the end of 7th year

$ 14,000,000.00

($ 21000000 - $ 7000000)

c)	Entry to record sale of equipment

	Particulars	Debit	Credit

	Cash	$ 15,000,000.00
	Accumulated Depreciation	$ 7,000,000.00
	To Equipment		$ 21,000,000.00
	To Gain on sale		$ 1,000,000.00

ekkarill92 answered 1 year ago

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