Question

On July 1, 2013, Farm Fresh Industries purchased a specialized delivery truck for $219,000. At the time, Farm Fresh estimated the truck to have a useful life of eight years and a residual value of $27,000. On March 1, 2018, the truck was sold for $88,000. Farm Fresh 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 update depreciation in 2018. 2. Prepare the journal entry to record the sale of the truck. 3. Assuming that the truck was sold for $125,000, prepare the journal entry to record the sale.

Answer 1

	Calculation of Depreciation as per straight line Depreciation
	Cost of Purchase of Equipment	$                   219,000
	Less : Salvage Value	$                      27,000
	Value for Depreciation	$                   192,000
	Life of the Building is =	8 Years
	Depreciation for the year = ($192,000 / 8 Years)	$                      24,000
	CALCULATION OF THE BOOK VALUE OF THE ASSETS AS ON MARCH 01 , 2018
	Purchase Price =	$                   219,000
	Less: Depreciation Charged :
	Depreciation for the year 2013 =($ 24,000 X 6/12)	$                      12,000
	Depreciation for the year 2014	$                      24,000
	Depreciation for the year 2015	$                      24,000
	Depreciation for the year 2016	$                      24,000
	Depreciation for the year 2017	$                      24,000
	Depreciation for the year 2018 ($ 24,000 X 2/12)	$                        4,000
	Total Depreciation	$                   112,000
	Book Value	$                   107,000
	CALULATION OF THE GAIN OR LOSS ON SALE OF THE TRUCK AT $ 88,000
	Sales Price of Truck	$                      88,000
	LEsS: Book Value of the truck	$                   107,000
	Gain or Loss	$                    -19,000
	CALULATION OF THE GAIN OR LOSS ON SALE OF THE TRUCK AT $ 125,000
	Sales Price of Truck	$                   125,000
	LEsS: Book Value of the truck	$                   107,000
	Gain or Loss	$                      18,000
Journal Entries
Date	ACCT Title and explanation	Debit	Credit
01-Mar-18	Depreciation	$                        4,000
	To Truck		$4,000
	(To record the depreication of the year)
	Accumulated Depreciation	$                   112,000
01-Mar-18	Loss on sale of Truck	$                      19,000
	Cash	$                      88,000
	To Truck		$219,000
	(To record the sale of truck at $ 88,000)
01-Mar-18	Accumulated Depreciation	$                   112,000
	Cash	$                   125,000
	To Truck		$219,000
	To Gain on sale of Truck		$18,000
	(To record the sale of truck at $ 88,000)