Question

Equipment acquired on January 5 at a cost of $151,710, has an estimated useful life of 16 years, has an estimated residual value of $9,950, and is depreciated by the straight-line method. a. What was the book value of the equipment at December 31 the end of the fourth year? $ b. Assuming that the equipment was sold on April 1 of the fifth year for 107,900. 1. Journalize the entry to record depreciation for the three months until the sale date. Round your answers to the nerest whole dollar if required. 2. Journalize the entry to record the sale of the equipment. If an amount box does not require an entry, leave it blank. Do not round intermediate calculations.

Answer 1

a.

Cost of equipment = $151,710

Residual value = $9,950

Useful life = 16 years

Annual depreciation = (Cost of equipment – Residual value)/Useful life

Annual depreciation = ($151,710-$9,950)/16 years = $8,860

Accumulated depreciation at the end of year 4 = $8,860 * 4 years = $35,440

Book value at the end of year 4 = Cost of equipment – Accumulated depreciation

Book value at the end of year 4 = $151,710 - $35,440 = $116,270

b.

1. Depreciation for 3 months = $8,860 * 3 months/12 months = $2,215

Date	Account titles and explanation	Debit	Credit
April 1	Depreciation expense	$ 2,215.00
	Accumulated depreciation		$ 2,215.00

2.

Accumulated depreciation as on April 1 of fourth year = $35,440 + $2,215 = $37,655

Date	Account titles and explanation	Debit	Credit
April 1	Cash	$ 107,900.00
	Accumulated depreciation	$ 37,655.00
	Loss on sale of equipment	$ 6,155.00
	Equipment		$ 151,710.00