Equipment was acquired at the beginning of the year at a cost of $75,000. The equipment was depreciated using the straight-line method based upon an estimated useful life of 6 years and an estimated residual value of $7,740.
Required:
a What was the depreciation expense for the first year?
b. Assuming the equipment was sold at the end of the second year for $50,786, determine the gain or loss on sale of the equipment
c. Journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles
Answer to Part
a.
Straight Line Depreciation per year = (Cost – Residual Value) /
useful Life
Straight Line Depreciation per year = ($75,000 - $7,740) / 6
Straight Line Depreciation per year = $11,210
Therefore, Depreciation expenses for the first year is $11,210
Answer to Part
b.
Accumulated Depreciation at the end of Year 2 = Annual Depreciation
* 2
Accumulated Depreciation at the end of Year 2 = $11,210 * 2
Accumulated Depreciation at the end of Year 2 = $22,420
Book Value on the date of Sale = Cost – Accumulated Depreciation
till the date of Sale
Book Value on the date of Sale = $75,000 - $22,420
Book Value on the date of Sale = $52,580
Sale Value = $56,786
Gain/ (Loss) on Sale of Equipment = Sale Value – Book Value on
the date of Sale
Gain/ (Loss) on Sale of Equipment = $56,786 - $52,580
Gain on Sale of Equipment = $4,206
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