Question

Chart of Accounts General Journal Analysis Instructions Swann Company sold a delivery truck on April 1, 2019. Swann had acquired the truck on January 1, 2015, for $12,000. At acquisition, Swann had estimated that the truck would have an estimated life of 5 years and a residual value of $5,000 Swann uses the straight-line method of depreciation. At December 31, 2018, the truck had a book value of $12.400. Required: 1. Prepare any necessary journal entries to record the sale of the truck, assuming it sold for a. $12,000 b. $9,000 2. How should the gain or loss on disposal be reported on the income statement? 3. Assume that Swann uses IFRS and sold the truck for $12,000. In addition, Swann had previously recorded a revaluation surplus related to this machine of $4,000. What journal entries are required to record the sale?

Answer 1

Answer-Journal Entries if selling price is $12,000.

Date	Account Title	Post.Ref.	Debit ($)	Credit ($)
Apr.1	Depreciation Expense		1,850
	Accumulated Depreciation			1,850
Apr.1	Cash		12,000
	Accumulated Depreciation ($7,400*4+$1,850)		31,450
	Gain on disposal of Plant, Property and Equipment ($12,000+$31,450-$42,000)			$1,450
	Trucks			42,000

Working Note:

Calculation of Depreciation= Cost-Residual value/ Estimated useful life

=$42,000-$5,000/ 5 years

=$7,400

Depreciation for Jan.1 to March 31= $7,400*3/12

=$1,850

Journal Entries if selling price is $9,000.

Date	Account Title	Post.Ref.	Debit ($)	Credit ($)
Apr.1	Depreciation Expense		1,850
	Accumulated Depreciation			1,850
Apr.1	Cash		9,000
	Accumulated Depreciation ($7,400*4+$1,850)		31,450
	Loss on disposal of Plant, Property and Equipment ($9,000+$31,450-$42,000)		1,550
	Trucks			42,000

2-Gain or loss on disposal should be reported on the income statement by a separate line below operating expenses.

3-

Journal Entry
Date	Accounts Title	POST.REF.	(Debit) $	(Credit) $
Apr.1	Depreciation Expense		1,850
	Accumulated Depreciation			1,850
Apr.1	Cash		12,000
	Accumulated Depreciation		31,450
	Revaluation reserve		4,000
	Truck assets(book value + Revaluation surplus) (42,000+4000)			46,000
	Gain on Disposal of Property,Plant and Equipment			1,450