Question

Jaguar Corporation purchased a machine that had an original cost of $60,000 and an estimated residual value of $10,000. The useful life was expected to be 8 years and straight-line depreciation is used. At December 31, 2006 (Jaguar’s annual year-end), the book value of the machine was $35,000. Jaguar Corporation sold the machine for $32,000 cash on October 1, 2007.

Required: (A) Prepare the journal entry to record depreciation expense for 2007 at Oct 1, 2007 for the machine. Round the amount to the nearest dollar. (B) Prepare the journal entry to record the sale of the machine on Oct. 1, 2007.

Answer 1

(A).

Date	Accounts Titles & explanation	Debit	Credit
2017
Oct. 1	Depreciation expense	$4688
	Accumulated Depreciation		$4688
	(For recording depreciation for 9 months)

Working Note;

Annula depreciation will be calculated as follow;

Original cost = $60000

Residual value = $10000

Useful life = 8 years

Thus annual depreciation ($60000 – $10000) / 8 = $6250

As per requirement of the question, it is clear that depreciation expense need to be calculate for 9 months (Till October 1);

Depreciation for 9 months ($6250 * 9 / 12) = $4687.50 or $4688

(B).

Date	Accounts Titles & explanation	Debit	Credit
2017
Oct. 1	Cash	$32000
	Accumulated Depreciation	$29688
	Machine		$60000
	Gain on sale of Machine		$1688
	(For recording sale of machine and gain on sale of machine)

Working Note;

1. Accumulated depreciation on October 1, 2017 will be calculated as follow;

($60000 – $35000) = $25000 + $4688 = $29688

2. Gain on sale of machine;

(Sale price + Accumulated depreciation – Original cost of machine)

($32000 + $29688 - $60000) = $1688