Question

Depreciation expense

Assume that Gonzalez Company purchased an asset on January 1, 2014, for $44,600. The asset had an estimated life of six years and an estimated residual value of $4,460. The company used the straight-line method to depreciate the asset. On July 1, 2016, the asset was sold for $30,645.

1. Make the journal entry to record depreciation for 2016.

2. Record the sale of the asset.

3. How does the entry affect the accounting equation?

4. How should the gain or loss on the sale of the asset be presented on the income statement?

Answer 1

	CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD
	Purchase Cost of Machine	$                44,600.00
	Less: Salvage Value	$                  4,460.00
	Net Value for Depreciation	$                40,140.00
	Usefule life of the Assets	6 years
	Depreciation per year = Value for Depreciation / 6 years =	$                        6,690
	Total Depreciation in 2014 & 2015 ($ 6,690 X 2)	$                      13,380
	in the year 2016 only 6 months depreciation is charged =	$                        3,345
	($ 6,690 / 2)
	Total Depreciation,	$                      16,725
	CALCULAITON OF THE BOOK VALUE OF THE ASSETS
	Purchase price of the assets =	$                      44,600
	Less: Depreciation	$                      16,725
	Net Book Value =	$                      27,875
	CALCULATION OF THE PROFIT / GAIN ON SALE OF THE ASSETS
	Sales of the assets =	$                      30,645
	Less: Book Value of the assets =	$                      27,875
	Profit	$                        2,770
	Answer =1
Date	Jounral/ JOURNAL	Debit	Credit
July 1, 2016	Depreciation	$                        3,345
	To Assets		$             3,345
	(to Record the depreciation of the assets)
	Answer =2
July 1, 2016	Cash	$                      30,645
	To Assets		$           27,875
	To Profit on sale of assets		$             2,770
	(To Record the sale of Assets )
	Answer =3
	This entry will affect the as below,
	Increases the cash by $ 30,645
	Reduces the assets by $ 27,875
	Increses the depreciation expenses by $ 3,345
	Answer =4
	There is gain on sale of investment of $ 2,770 this will be shown at credit side of the income statement