On March 31, 2021, management of Quality Appliances committed to a plan to sell equipment. The equipment was available for immediate sale, and an active plan to locate a buyer was initiated. The equipment had been purchased on January 1, 2019, for $260,000. The equipment had an estimated six-year service life and residual value of $20,000. The equipment was being depreciated using the straight-line method. Quality’s fiscal year ends on December 31.Required:1. Calculate the equipment’s book value as of March 31, 2021 (Hint: Depreciation for 2021 would include up to March 31).2. By December 31, 2021, the equipment has not been sold, but management expects that it will be sold in 2022 for $150,000. For what amount is the equipment reported in the December 31, 2021, balance sheet?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On March 31, 2021, management of Quality Appliances committed to a plan to sell equipment. The equipment was available for immediate sale, and an active plan to locate a buyer was initiated. The equipment had been purchased on January 1, 2019, for $260,000. The equipment had an estimated six-year service life and residual value of $20,000. The equipment was being
Required:
1. Calculate the equipment’s book value as of March 31, 2021 (Hint: Depreciation for 2021 would include up to March 31).
2. By December 31, 2021, the equipment has not been sold, but management expects that it will be sold in 2022 for $150,000. For what amount is the equipment reported in the December 31, 2021, balance sheet?
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
