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Howarth Manufacturing Company purchased equipment on June 30, 2017, at a cost of $160,000. The residual...

Howarth Manufacturing Company purchased equipment on June 30, 2017, at a cost of $160,000. The residual value of the equipment was estimated to be $10,000 at the end of a five-year life. The equipment was sold on March 31, 2021, for $43,000. Howarth uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the asset is in service.

Required:
1. Prepare the journal entry to record the sale.
2. Assuming that Howarth had instead used the double-declining-balance method, prepare the journal entry to record the sale.

Expert Solution

Straight line Depreciation : (cost - residual value )/ Life of asset

Depreciation per year : (160000-10000)/5 + 30,000 per year.

date	Book value	Depreciation	net book value
june30 2017	160000	15000	145000
jan 1 2018	145000	30000	115000
jan 1 2019	115000	30000	85000
jan 1 2020	85000	30000	55000
jan 1 2021 to 31 st march 2021	55000	7500	47500.

net book value as on 31 st march 2021 is $47,500.

journal entry

cash / bank A/C ...........................Dr $ 43,000

loss on sale of equipment A/c ..... Dr $ 4,500

To Equipment A/c. $ 47,500.

Double Decling balance method.

Depreciation :( 2) * (net book value - residual value )/life of asset

date	book value	depreciation	net book value
june 30 2017	160000	30000	130000
jan 1 2018	130000	48000	82000
jan 1 2019	82000	28800	53200
jan 1 2020	53200	17280	35920
jan 1 2021	35920	2592	33328

Net book value as on 31 march 2021 is $33,328.

JOurnal entry

Cash A/C ............Dr $43,000

To equipment A/c cr $ 33,328

To gain on sale of equipment Cr $ 9,762

ekkarill92 answered 1 year ago

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