Question

Equipment was acquired at the beginning of the year at a cost of $562,500. The equipment was depreciated using the straight-line method based on an estimated useful life of 9 years and an estimated residual value of $40,600. a. What was the depreciation for the first year? Round your answer to the nearest cent.

b. Using the rounded amount from Part a in your computation, determine the gain(loss) on the sale of the equipment, assuming it was sold at the end of year eight for $92,889. Round your answer to the nearest cent and enter as a positive amount.

c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank. Round your answers to the nearest cent.

Answer 1

Requirement a
Depreciation for the First Year	$ 65,237.50

Requirement b

A	Cost of Equipment	$   562,500.00
B	Total Accumulated Depreciation on Equipment	$   521,900.00
C=A - B	Book Value of Asset	$      40,600.00
D	Sale Consideration	$      92,889.00
E=D-C	Profit on sale of Equipment	$      52,289.00

Requirement c
Journal Entry for Sale of Asset
General Journal		Debit		Credit
Cash		$      92,889.00
Accumulated Depreciation-Equipment		$   521,900.00
Equipment				$ 562,500.00
Profit on sale of Equipment				$   52,289.00
(Equipment Sold)

Working note

Straight line Method

A	Cost	$ 562,500.00
B	Residual Value	$   40,600.00
C=A - B	Depreciable base	$ 521,900.00
D	Life [in years]	8
E=C/D	Annual SLM depreciation	$   65,237.50

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$ 562,500.00	$   65,237.50	$ 497,262.50*	$    65,237.50
2	$ 497,262.50	$   65,237.50	$ 432,025.00	$ 130,475.00**
3	$ 432,025.00	$   65,237.50	$ 366,787.50	$ 195,712.50
4	$ 366,787.50	$   65,237.50	$ 301,550.00	$ 260,950.00
5	$ 301,550.00	$   65,237.50	$ 236,312.50	$ 326,187.50
6	$ 236,312.50	$   65,237.50	$ 171,075.00	$ 391,425.00
7	$ 171,075.00	$   65,237.50	$ 105,837.50	$ 456,662.50
8	$ 105,837.50	$   65,237.50	$   40,600.00	$ 521,900.00

*Beginning Book value –Depreciation expense

**Accumulated depreciation of till end of last year +Depreciation expense of Current year