Chapter 10, Problem 10.18EX

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:

$\text{Depreciation = }\frac{\left(\text{Cost of the asset}-\text{Residual value}\right)}{\text{Estimated useful life of the asset}}$

the annual amount of depreciation for the years1-3 using the straight-line method of depreciation.

b)

To determine

the book value of the equipment on January 1, 2016.

c)

To determine

To record: the journal entry for the sale of the equipment on January 3, 2016.

d)

To determine

To record: the journal entry for the sale of the equipment on January 3 2016.