Question

On May 31, 2015, a company sold a storage shed. The company had purchased the shed on January 1, 2008 for $414,600. When purchased, it had been estimated to have a useful life of 16 years and a residual value of $69,000. Assume that the company has been using the straight-line method and sold the asset for $258,000. Calculate the gain or loss on disposal of the asset. The on the disposal of the asset is $

Answer 1

1.

The Gain on Disposal of asset is $ 3600

Working:

Straight line Method
A	Cost	414600
B	Residual Value	69000
C=A - B	Depreciable base	345600
D	Life [in years left ]	16
E=C/D	Annual SLM depreciation	21600

Depreciation schedule
Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
2008	$     414,600.00	$ 21,600.00	$ 393,000.00	$   21,600.00
2009	$     393,000.00	$ 21,600.00	$ 371,400.00	$   43,200.00
2010	$     371,400.00	$ 21,600.00	$ 349,800.00	$   64,800.00
2011	$     349,800.00	$ 21,600.00	$ 328,200.00	$   86,400.00
2012	$     328,200.00	$ 21,600.00	$ 306,600.00	$ 108,000.00
2013	$     306,600.00	$ 21,600.00	$ 285,000.00	$ 129,600.00
2014	$     285,000.00	$ 21,600.00	$ 263,400.00	$ 151,200.00
2015	$     263,400.00	$   9,000.00	$ 254,400.00	$ 160,200.00

Cost	$     414,600.00
Accumulated depreciation	$     160,200.00
Book value	$     254,400.00
Sales price	$     258,000.00
Book value	$     254,400.00
Gain /(loss)	$         3,600.00

2.

Journal Entry
Date	Account Title	Debit	Credit
31-Dec	Depletion Expense	$   1,167,000.00
	Accumulated Depletion -Oil reserve		$ 1,167,000.00
	(To record depletion for first year)

Working:  

Cost of Oil reserve = 6800000+520000+460000

Cost of Oil reserve = $7780,000

Depletion expense for first year = (Cost - Residual value) x (1/ Estimated Units) * Units removed

Depletion expense for first year = (7,780,000 - 0) x (1/500,000)*75000

Depletion expense = $1,167,000