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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

Sale of equipment

Equipment was acquired at the beginning of the year at a cost of $465,000. The equipment was depreciated using the straight-line method based on an estimated useful life of 15 years and an estimated residual value of $45,000.

  1. a. What was the depreciation for the first year?
  2. b. Assuming the equipment was sold at the end of the eighth year for $235,000, determine the gain or loss on the sale of the equipment.
  3. c. Journalize the entry to record the sale.

(a)

To determine

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

To determine: the depreciation for the first year.

Explanation

Determine the depreciation for the first year.

Cost of the equipment =$465,000

Estimated residual Value = $45,000

Estimated useful life =15 years

AnnualDepreciation = (Cost of the assetResidual value)Estimated useful life</

(b)

To determine
the gain or loss on the sale of the equipment.

(c)

To determine

To journalize: theentry to record the sale of the equipment.

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