Question

Example Five:

On January 1, 2018, OP Company purchased equipment to be used in their business. The equipment cost $78,000. It will be used for 8 years, after which its salvage value (residual value) is estimated to be $6,000.

Required:

1. Record the purchase of the machine on January 1, 2017.

Date	Account Name	Debit	Credit

2. Complete the depreciation table below using straight-line depreciation.

Period Ended	Depreciation Expense	Accumulated Depreciation	End of Period Book Value
12-31-2018
12-31-2019
12-31-2020
12-31-2021
12-31-2022
12-31-2023
12-31-2024
12-31-2025

Record the depreciation expense as of December 31, 2018.

Date	Account Name	Debit	Credit

Suppose OP Company sells the equipment on December 31, 2021 for $44,000. Prepare the journal entry to record the sale.

Date	Account Name	Debit	Credit

Answer 1

1. In the books of OP Company:

Date	Account Titles	Debit	Credit
		$	$
January 1, 2018	Equipment	78,000
	Cash		78,000

Annual depreciation = $ ( 78,000 - 6,000) / 8 = $ 9,000.

Depreciation Table:

Period Ended	Depreciation Expense	Accumulated Depreciation	End of Period Book Value
	$	$	$
12-31-2018	9,000	9,000	69,000
12-31-2019	9,000	18,000	60,000
12-31-2020	9,000	27,000	51,000
12-31-2021	9,000	36,000	42,000
12-31-2022	9,000	45,000	33,000
12-31-2023	9,000	54,000	24,000
12-31-2024	9,000	63,000	15,000
12-31-2025	9,000	72,000	6,000

In the books of OP Company:

Date	Account Titles	Debit	Credit
		$	$
December 31, 2018	Depreciation Expense	9,000
	Accumulated Depreciation : Equipment		9,000

If OP Company sells the equipment on December 31, 2021, for $ 44,000:

Date	Account Titles	Debit	Credit
		$	$
December 31, 2021	Cash	44,000
	Acumulated Depreciation : Equipment	36,000
	Equipment		78,000
	Gain on Sale of Equipment		2,000