Question

In: Accounting

On January 1,20X6 ,the company sold for 1,800 a piece of equipment costing 3,900. At the...

On January 1,20X6 ,the company sold for 1,800 a piece of equipment costing 3,900. At the date of sale of the equipment had accumulated depreciaition of 2,400. The company recorded the cash received as other revenue in 20X6. Also, the company continued to record depreciation for this equipment in both 20X6 and 20X7 at the rate of 10% of cost.

Recording correcting entries on Dec31,20X7

Case 1: When the company has not yet closed the 20X7 books.

Case 2: When the company has closed the 20X7 books.

Solutions

Expert Solution

Solution:

On January 1,20X6

Company sold a piece of equipment for 1,800

Cost of equipment      3,900

Accumulated depreciation on equipment   2,400

Value of equipment on date of sale

= Cost of equipment - Accumulated depreciation

= 3,900-2,400

= 1500

Profit on sale of equipment

= Sale price of equipment- Value of equipment on date of sale

= 1,800- 1500

= 300

As the equipment has been sold on January 1, 2016, ideally no depreciation should be charged on equipment afterwards.

Case 1: When the company has not yet closed the 20X7 books.

Wrong transaction recorded in books in 20X6

Cash from sale of equipment that is 1800 included as other revenue in 20X6.

Journal Entry passed would be:

-Cash Account         Debit                         1800

             Revenue Account                            Credit            1800

-Revenue Account   Debit                          1800

              Profit / Loss Account                      Credit              1800

Depreciation recorded= 3900 x 10% = 390

Journal Entry passed would be:

Depreciation Account            390

                Accumulated Depreciation Account                390

Wrong transaction recorded in books in 20X7

Depreciation recorded= 3900 x 10% = 390

Journal Entry passed would be:

Depreciation Account            390

                Accumulated Depreciation Account                390

Correcting Journal Entries

On Dec31, 20X7

Transaction Number

Account Titles

Debit

Credit

-

Profit / Loss Account                     

1800

                           Revenue Account                            

1800

(Reverse entry for wrongly recorded revenue)

-

Cash

1800

                           Equipment

1500

                           Profit on sale of equipment

300

(Correct entry for sale of equipment)

-

Profit on sale of equipment

300

                         Profit / Loss Account                     

300

(Transfer of profit to income statement)

-

Accumulated Depreciation Account

390

                      Depreciation Account

390

(Reverse entry for wrongly recorded revenue)

Case 2: When the company has closed the 20X7 books.

Correcting Journal Entries

On Dec31, 20X7

Transaction Number

Account Titles

Debit

Credit

-

Retained earnings- error correction (1800 +390)

2190

                           Equipment

1500

                           Profit on sale of equipment

300

                          Depreciation

390


Related Solutions

Farmer Company sold a piece of equipment for $6,000. The equipment had an original cost of...
Farmer Company sold a piece of equipment for $6,000. The equipment had an original cost of $34,000 and accumulated depreciation of $31,000 at the time of the sale. Which of the following correctly shows the effect of the sale on the elements of the financial statements? Assets = Liab. + Stk Equity Rev./Gain − Exp. = Net Inc. Stmt of Cash Flow A. 3,000 NA 3,000 3,000 NA 3,000 6,000 OA B. (3,000) NA (3,000) NA 3,000 (3,000) 6,000 IA...
Vancouver Inc. invests in a new piece of equipment, the Suspension Bridge, costing $140,000 on January...
Vancouver Inc. invests in a new piece of equipment, the Suspension Bridge, costing $140,000 on January 1, 2021. It intends to operate the equipment for five years when the scrap value will be zero. Expected net cash flows from the project are $15,000 in the first and second years and $25,000 for the last three years. The discount rate is 14 per cent and the rate of corporation tax is 35 per cent. Calculate the project’s post-tax NPV
On January 1, 20x2, Astro Ltd. purchased a piece of equipment costing $84816. At the time,...
On January 1, 20x2, Astro Ltd. purchased a piece of equipment costing $84816. At the time, the equipment’s useful life was expected to be 8 years with an estimated residual value of $15821. In 20x6, these estimates were revised: the total estimated useful life of the equipment is expected to be 12 years and the residual value is expected to be $11736. What will the depreciation expense be for 20x6? Assume the company uses straight-line depreciation.
A company sold a piece of equipment at the beginning of year 1, receiving a $29,000,...
A company sold a piece of equipment at the beginning of year 1, receiving a $29,000, two – year 1% note. Interest is paid at the end of each year. Market interest rates are assumed to be 10% Calculate the present value of the note receivable Prepare journal entries for the sale, interest revenue, and cash collection each year for two years
1. On January 1, 2019, ABC Company purchased a new piece of equipment. The equipment was...
1. On January 1, 2019, ABC Company purchased a new piece of equipment. The equipment was assigned a $7,000 residual value and is expected to produce a total of 60,000 units over its life. The depreciation expense reported on the equipment for 2019 was $10,734. During 2020, the equipment was used to produce 9,000 units. At December 31, 2020, the book value of the equipment was $57,466. ABC Company is using the units-of-production depreciation method to depreciate the equipment. Calculate...
A company purchased a piece of equipment for $40,000 on January 1, 2018. At that time...
A company purchased a piece of equipment for $40,000 on January 1, 2018. At that time the company estimated the equipment would have a 6-year useful life and no salvage value. The company used straight-line depreciation based on this information used through 2019. On December 31, 2020, the company determined the equipment instead has a 9-year useful life, with no salvage value. The company's tax rate has been 20% since 2015. What is the necessary adjustment to beginning retained earnings...
A company purchased a piece of manufacturing equipment for $30,000 on January 1, 2018. At that...
A company purchased a piece of manufacturing equipment for $30,000 on January 1, 2018. At that time, the company estimated the equipment would have a 7-year useful life and no salvage value. The company used straight-line depreciation based on this information through 2019. On December 31, 2020, the company determined the equipment instead has a 10-year useful life, with no salvage value. The company’s tax rate has been 30% since 2015. What is the necessary adjustment to beginning retained earnings...
You invest in a piece of equipment costing $30,000. The equipment will be used for two...
You invest in a piece of equipment costing $30,000. The equipment will be used for two years, at the end of which time the salvage value of the machine is expected to be 1/3 of its original value . The expected annual net savings in operating costs will be $25,000 during the first year and $40,000 during the second year. a) If your interest rate is 10%, what would be the Net Annual Worth (or Equivalence) of the project? b)...
A company purchased a piece of equipment on January 2, 20x5 for $560,000 (residual value of...
A company purchased a piece of equipment on January 2, 20x5 for $560,000 (residual value of zero), and determined that it would need to be decommissioned at the end of its useful life at an estimated cost of $150,000. The relevant discount rate is 5% and the useful life is 20 years. The CFO believes that advances in technologies will cause this estimate to be $50,000 in 20x13 and is interested in knowing what impact this change in estimate will...
Oxford company, equipment manufacturer, sold equipment costing $42,000 to Conlin services in exchange for a zero-interest...
Oxford company, equipment manufacturer, sold equipment costing $42,000 to Conlin services in exchange for a zero-interest bearing note with a face value of $52,000 on july 1, with payment due in 12 months. The fair value of the equipment on the date of sale was $46,000. Oxford has a calendar year reporting period. Instructions Journalize all entries for Oxford company
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT