Question

Pharoah Company purchased equipment in 2020 for $104,000 and estimated an $8,000 salvage value at the end of the equipment's 10-year useful life. At December 31, 2021, there was $67,200 in the Accumulated Depreciation account for this equipment using the straight-line method of depreciation. On March 31, 2022, the equipment was sold for $21,000.
Prepare the appropriate journal entries to remove the equipment from the books of Pharoah Company on March 31, 2022. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Answer:

Pharoah Company

General Journal

Debit Sale of Equipment $104,000

Credit Equipment account $104,000

To close the equipment account.

Debit Accumulated Depreciation $69,600

Credit Sale of Equipment $69,600

To close the accumulated depreciation account.

Debit Cash Account $21,000

Credit Sale of Equipment $21,000

To record the cash receipts from the sale.

Explanation:

a) Calculations:

Purchase price = $104,000

Salvage value = $8,000

Depreciable amount = $96,000

Depreciation per year = $9,600 ($96,000/10)

Accumulated Depreciation at Dec. 31, 2021 = $67,200

This shows that the equipment was bought 7 years ago (not clear from the question), because $9,600 x 7 = $67,200

b) Depreciation expense for 2022 = $2,400 ($9,600 x 3/12)

c) Total accumulated depreciation = $69,600 ($67,200 + 2,400)

d) The difference in the Sale of Equipment account is the loss on sale = $13,400 ($104,000 - 69,600 - 21,000).  This shows that the equipment was sold at a loss of $13,400.