Question

On January 2, 2017. Repeat Clothing Consignments purchased showroom futures for $11,000 cash, expecting the fixtures to remain in service for five years. Repeat has depreciated the fixtures on a double-declining balance basis, with zero residual value. On August 31, 2018, Repeat sold the futures for $5,000 cash Record both depreciation expense for 2018 and sale of the fixtures on August 31, 2018. (Record debits first, then credits. Select the explanation on the last line of the journal entry table. Note that 2017 depreciation was recorded and posted in 2017.) Begin by recording the depreciation expense for January 1, 2018 through August 31, 2018 Date Accounts and Explanation Debit Credit Aug. 31

Answer 1

journal entry

aug 31 2018

depreciation A/C dr 1760

cash A/C dr. $5000

To profit & loss A/C $160

To Fixtures A/C 6600

working notes

as the showroom fixtures were purchased on 1st jan 2017 for $11000

depreciation for year 2017 on the double declining basis method of charging depreciation is

book value of asset * (2 / life of asset)

= 11000 * (2 / 5) = 4400

thus $4400 of depreciation is charged for the year 2017

thus the book value of fixture on 1st jan 2018 comes out to be 11000 - 4400 = $6600 (cost - depreciation)

now depreciation for year 2018 for 8 months, i.e, 31st aug 2018 is

6600 * (2/5) * 8/12 = 1760

thus $1760 depreciation is charged for 2018 till the month of august

book value of asset on 31st aug 2018 is 6600 - 1760 = $4840 (book value on 2017 - depreciation for 8 months)

now fixture was sold for $5000

thus the gain on selling the fixture = $160 (5000 - 4840)