Question

Equipment acquired on January 6 at a cost of $335,190, has an estimated useful life of 13 years and an estimated residual value of $68,690. A. What was the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation? B. What was the book value of the equipment on January 1 of Year 4? C. Assuming that the equipment was sold on January 3 of Year 4 for $256,655, journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles. D. Assuming that the equipment had been sold on January 3 of Year 4 for $287,515 instead of $256,655, journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

a) Annual depreciation expense for year 1-3 = (335190-68690/13) = $20500 per year

b) Book value on january 1, Year 4 = 335190-(20500*3) = $273690

c) Journal entry

Date	account and explanation	debit	credit
Jan 3, Year 4	Cash	256655
	Accumulated depreciation-equipment	61500
	Loss on sale of equipment	17035
	Equipment		335190
	(To record sale of equipment)

d) Journal entry

Date	account and explanation	debit	credit
Jan 3, Year 4	Cash	287515
	Accumulated depreciation-equipment	61500
	Gain on sale of equipment		13825
	Equipment		335190
	(To record sale of equipment)