Question

1. On August 16, 2016, Cory Corp. acquires a new piece of equipment for $80,000. Bryant depreciates equipment over ten years, assumes the residual value to be 5% of the purchase price, and uses a half-year convention in the year of acquisition. Record the journal entries for depreciation for 2017 and 2018.

Year	Account Name And Explanation	Debit	Credit
2017	Depreciation expense	$7,600
	Accumulated depreciation on New equipment		$7,600
	(Depreciation charged for 2017)
2018	Depreciation expense	$7,600
	Accumulated depreciation on New equipment		$7,600
	(Depreciation Charged for 2018)

2. Related to the above Question 17, if Bryant Corp. sells the equipment late in December 2018, for $70,000, what is the gain or loss on the sale?

Answer 1

1)	Journal Entries
	Date	Particulars			Debit	Credit
	2017	Depreciation Expense			$ 7,600.00
		To Accumulated Depreciation				$ 7,600.00
	2018	Depreciation Expense			$ 7,600.00
		To Accumulated Depreciation				$ 7,600.00

Workings:
Cost of the equipment				$ 80,000.00
Residual Value ($ 80000 x 5%)				$   4,000.00
Depreciable Cost ($ 80000 - $ 4000)				$ 76,000.00
Useful Life				10	years
Depreciation Expense =			$ 76000 / 10 years
		=	$ 7,600.00

2)	Since the company is following half-year convention, they'll half the
	amount of depreciation in the year or purchase and sale
	Therefore, depreciation charged on:
				2016	($ 7600 / 2)	$   3,800.00
				2017		$   7,600.00
				2018	($ 7600 / 2)	$   3,800.00
					Total	$ 15,200.00
				Cost of the Equipment		$ 80,000.00
			Less:	Total Depreciation charged		$ 15,200.00
				Book Value as on Dec'18		$ 64,800.00
				Sale value		$ 70,000.00
				Gain on sale		$   5,200.00