Question
In: Accounting
Equipment was acquired at the beginning of the year at a cost of $75,720. The equipment...
Equipment was acquired at the beginning of the year at a cost of $75,720. The equipment was depreciated using the straight-line method based upon an estimated useful life of 6 years and an estimated residual value of $7,920.
Required:
| a. | What was the depreciation expense for the first year? |
| b. | Assuming the equipment was sold at the end of the second year for $57,370, determine the gain or loss on sale of the equipment. |
| c. | Journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles. |
Solutions
Expert Solution
a. Under the straight line method, depreciation is calculated by the following formula:
Depreciation = Cost - Residual value / Useful life
Cost = $75720, Residual value = $7920, useful life = 6
Depreciation = ($75720 - $7920) / 6 = $11300
Under straight line method, depreciation remains the same for every year. So depreciation for first year and thereafter is $11300.
b. For gain or loss on sale, first we need to determine the accumulated depreciation and book value on the dale of sale.Accumulated depreciation means depreciation charged till date.
Accumulated depreciation at the end of 2 years = 2 * $11300 = $22600
Book value at the end of 2 years = Cost - Accumulated depreciation
Book value at the end of 2 years = $75720 - $22600 = $53120
Now,
Gain on sale = Sale proceeds - Book value
Gain on sale = $57370 - $53120 = $4250
c. Required journal entry for sale is:
Debit Cash $57370
Debit Accumulated depreciation $22600
Credit Equipment $75720
Credit Gain on sale $4250
c.
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