Question
In: Accounting
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?
(c) Prepare the journal entry to record Southwest’s sale of the equipment at the end of the 7th year.
Solutions
Expert Solution
| a) | 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 | |||
| b) | 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 | ||||
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Flight Café prepares in-flight meals for airlines in its kitchen
located next to a local airport. The company’s planning budget for
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Flight Café
Planning Budget
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Budgeted meals (q)
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Revenue ($4.40q)
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Expenses:
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Revenue ($4.40q)
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Facility rent ($4,000)
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Insurance ($2,300)
2,300
Miscellaneous ($300 + $0.10q)
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