Question

Disposal of Fixed AssetEquipment acquired on January 6 at a cost of $401,300 has an estimated useful life of 18 years and an estimated residual value of $25,100.a. What was the annual amount of depreciation for Years 1–3 using the straight-line method of depreciation?Year Depreciation ExpenseYear 1 $Year 2 $Year 3 $b. What was the book value of the equipment on January 1 of Year 4?$
c. Assuming that the equipment was sold on January 3 of Year 4 for $329,500, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.
Year 4
Jan. 3 Cash
Accumulated Depreciation-Equipment
Loss on Sale of Equipment
Equipment
d. Assuming that the equipment had been sold on January 3 of Year 4 for $342,000 instead of $315,000, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.
Cash
Accumulated Depreciation-Equipment
Equipment
Gain on Sale of Equipment

Answer 1

Answer:

a. Cost of Equipment = $401300

Residual value = $25100

Useful life = 18 years

Depreciation expense = (Purchase cost - Residual value) / Useful life

Depreciation expense = ($401,300 - $25,100) / 18 years

Depreciation expense = $20,900

b. Book value of equipment on January 1 of year 4 = Purchase cost -(Depreciation expense * 3 years)

= $401300 - ($20900*3 years)

= $401300 - $62700

= $338,600

c. Accumulated Depreciation = Depreciation expense * 3 years

Accumulated Depreciation = $20,900*3

Accumulated Depreciation = $62,700

Gain/ loss on sale = Cash received for sale of asset - Book value of asset at jan 1 of year 4

Loss on sale = $315000 - $338600

Loss on sale = $23600

Journal Entry

Cash $315000 Dr

Accumulated depreciation-equipment $62700 Dr

Loss on sale of equipment $23600 Dr

Equipment $401300 Cr