Question

Presented below are selected transactions for the Cardinal company for 2015

Record the jounal entries related to these events

Jan 1 Retired piece of equipment that was purchased Jan 1, 2005. The equipment cost 75,000 on that date and had a useful life of 10 yrs with no salvage value

April 30 Sold equipment for 38,000 that was purchased on Jan 1, 2012. The equip cost 105,000 and had useful life of 5 years with no salvage value

Dec 31 Recorded depreciation on equipment that was purchased on January 1, 2013. The equipment cost 42,000. Cardinal originally estimated a 5 year useful life and a 2000 salvage value. On Jan 1, 2015 they adjusted these estimates to a 6 year useful life with no salvage value. Assume depreciation is recorded annually

Answer 1

• All working forms part of the answer
• Workings for Journal Entries

Working 1
Working Column	Purchase date	01-Jan-05
A	Cost	$75000
B	Residual Value	$0
C=A-B	Depreciable base	$75000
D	Life[in years]	10
E=C/D	Annual Depreciation	$7500
F=E x 10 years	Depreciation from 2005 to 2014 [10 years]	$75000
G=A-F	Book Value at the time of retirement	0
Working 2
Working Column	Purchase date	01-Jan-12
A	Cost	$105000
B	Residula Value	$0
C=A-B	Depreciable base	$105000
D	Life[in years]	5
E=C/D	Annual Depreciation	$21000
F=E x 3 years	Depreciation from 2012 to 2014 [3 years]	$63000
F=E x 4/12	Depreciation for 2015 till April [4 months]	$7000
G=A-F	Book Value at the time of sale	$35000
H	Sold for	$38000
I=H-G	Gain (Loss) on sale	$3000
Working 3
Working Column	Purchase date	01-Jan-13
A	Cost	$42000
B	Residula Value	$2000
C=A-B	Depreciable base	$40000
D	Life[in years]	5
E=C/D	Annual Depreciation	$8000
F=E x 2 years	Depreciation from 2013 to 2014 [2 years]	$24000
G=A-F	Book Value on 1 jan 2015 when life is re-estimated	$18000
H=6years -2years passed	Remaining useful life based on new 6 years life	4
I=G/H	Annual depreciation (new)	$4500

• Answers

Date	General Journal	Debit	Credit
01-Jan-15	Accumulated Depreciation-Equipment	$        75,000.00
Working 1	Equipment		$       75,000.00
	(equipment retired)
30-Apr-15	Cash	$        38,000.00
Working 2	Accumulated Depreciation-Equipment	$        70,000.00
	Gain on Sale		$          3,000.00
	Equipment		$    1,05,000.00
	(equipment sold)
31-Dec-15	Depreciation expense - Equipment	$          4,500.00
Working 3	Accumulated Depreciation-Equipment		$          4,500.00
	(depreciation recorded based on new useful life)