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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Entries for sale of fixed asset

Equipment acquired on January 8 at a cost of $168,000 has an estimated useful life of 18 years, has an estimated residual value of $15,000, and is depreciated by the straight-line method.

a. What was the book value of the equipment at December 31 the end of the fourth year?

b. Assuming that the equipment was sold on April 1 of the fifth year for $125,000, journalize the entries to record (1) depreciation for the three months until the sale date and (2) the sale of the equipment.

a.

To determine

Disposal of Assets: Disposal is an activity of selling the worn-out assets that is no longer in need for the business, in return of some consideration. Disposal may be made in any of the following situations:

  • Disposal with no gain no loss: When the asset is disposed with no consideration received.
  • Disposal with gain: When the asset is disposed for more than its book value (original cost less accumulated depreciation).
  • Disposal with loss: When the asset is disposed for less than its book value.

Straight-line Depreciation: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the residual value is shown as below:

Depreciation = (Cost of the assetResidual value)Estimated useful life of the asset

To determine: the book value of the equipment at December 31 at the end of the fourth year.

Explanation

Determine the book value of the equipment at December 31 at the end of the fourth year.

Title: Calculate the book value of the equipment sold.
Details Amount ($) Amount ($)
Cost of the Equipment   168,000
Less: Accumulated Depreciation
Annual Depreciation               (1) (8,500)
Number of years            ×4
Total accumulated depreciation (34,000)
Book Value of the Equipment 134,000

Table (1)

Working note:

Calculatethe amount of annual depreciation...

b (1)

To determine

To record: the journal entry for the partial-year depreciation expense for the equipment until the sale date.

b. (2)

To determine

To record: the journal entry for the sale of the equipment on April 1.

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