Answer:
April 01 2020
Land Debit $ 2,200,000
Cash Credit $2,200,000
To record purchase of land
May 01 2020
Cash Debit $ 504,000
Allowance for depreciation equipment Debit $ 363,720
Equipment Credit $ 840,000
Gain on sale of equipment Credit $ 27,720
To record sale of equipment and to recognise gain on sale
June 01 2020
Cash Debit $ 1,450,000
Land Credit $ 399,000
Gain in sale of land Credit $1,051,000
To record sale of land and gain on the sale
July 01 2020
Equipment Debit $ 2,480,000
Cash Credit $ 2,480,000
To record purchase of equipment
December 31 2020
Allowance for depreciation Debit $ 491,000
Equipment Credit $ 491,000
To record retirement of equipment
The adjusting entry for depreciation is as follows:
December 31 2020
Depreciation expense - Equipment Debit $ 4,985,000
Depreciation expense - Buildings Debit $ 578,200
Allowance for depreciation - Equipment Credit $ 4,985,000
Allowance for depreciation - Buildings Credit $ 578,200
Explanation:
Computation for Depreciation expense for the year
Equipment Jan 01 2020 $ 48,670,000 for 4 months @ 10 %
Sales - May 01 2020 <u>$( 840,000)</u>
Adjusted balance May 01 2020 $ 47,830,000 for 2 months @ 10 %
Purchases July 01 2020 <u>$ 2,480,000</u>
Adjusted balance July 01 2020 $ 50,310,000 for 6 months @ 10 %
Depreciation expense for 4 months = $ 48,670,000*10 % *4/12 = $1,622,333
Depreciation expense for 2 months = $ 47,830,000*10 % *2/12 = $ 797,167
Depreciation expense for 6 months = $ 51,310,000*10 % *6/12 =<u>$ 2,565,500</u>
Total depreciation equipment $ 4,985,000
Depreciation on buildings $ 28,910,000 * 2 % $ 578,200
Depreciation has to be recorded for full year on assets retired on December 31 2020
Computation of gain and loss on sale of equipment
Cost of equipment purchased on January 1 2016 $ 840,000
Depreciation rate 10 %
Equipment sold on May 01 2020
Depreciation charged for 4 years and 3 months @ 10 %
$ 840,000 * 4.33 *10 % <u>$ 363,720</u>
Net book value of equipment disposed on May 01 2020 $ 476,280
Sale value of equipment <u>$ 504,000</u>
Gain on sale of equipment $ (27,720 )
The gain on sale of land is the difference between the cost and sales proceeds since land is not depreciated
Sale proceeds - Cost = $ 1,450,000 - $ 399,000 = $ 1,051,000
The assets that was retired on Dec 31 2020 was purchased on December 31 2010 and was considered for depreciation for 10 years and was fully depreciated and had ni book value on the date of retirement