Question

Equipment was acquired at the beginning of the year at a cost of $79,560. The equipment was depreciated using the straight-line method based upon an estimated useful life of 6 years and an estimated residual value of $7,800.

a. What was the depreciation expense for the first year?
$

b. Assuming the equipment was sold at the end of the second year for $60,100, determine the gain or loss on sale of the equipment.
$   

c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank or enter "0".

  

Answer 1

Ans. 1	Straight line depreciation = (Cost of equipment - Residual value) / Useful life in years
	($79,560 - $7,800) / 6
	$71,760 / 6
	$11,960
	The depreciation expense for first year is $11,960.
Ans. 2	*Calculations for accumulated depreciation upto the date of sale :
	*In Straight line method the depreciation is equal in each year.
	Year	Depreciation
	1	$11,960
	2	$11,960
	Accumulated depreciation	$23,920
	*Calculations for Book value at the end of second year :
	Total cost	$79,560
	Less: Accumulated depreciation	-$23,920
	Book value	$55,640
	Gain on sale of equipment = Sales value - Book value at the end of second year
	$60,100 - $55,640
	$4,460
Ans. 3
Year	Particulars	Debit	Credit
2	Cash	$60,100
	Accmulated depreciation on equipment	$23,920
	Gain on sale of equipment		$4,460
	Equipment		$79,560
	(Equipment sold on gain)