Sale of Equipment
Equipment was acquired at the beginning of the year at a cost of $587,500. The equipment was depreciated using the straight-line method based on an estimated useful life of 9 years and an estimated residual value of $45,390.
a. What was the depreciation for the first
year? Round your answer to the nearest cent.
$
b. Using the rounded amount from Part a in your computation, determine the gain(loss) on the sale of the equipment, assuming it was sold at the end of year eight for $100,404.
Round your answer to the nearest cent and enter as a positive
amount.
$ Loss
c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank. Round your answers to the nearest cent.
Cash | |||
Accumulated Depreciation-Equipment | |||
Loss on Sale of Equipment | |||
Equipment |
a.
Depreciation for the first year = [Cost - Residual value]/Useful life = ($587,500 - $45,390)/9 = $60,234.44
b.
Cost of equipment = $587,500
Accumulated depreciation on Equipment = $60,234.44 x 8 = $481,875.52
Book value of equipment at the time of sale = Cost - Accumulated depreciation = $587,500 - $481,875.52 = $105,624.48
Selling price of the equipment = $100,404
Therefore,
Loss on sale = Book value - Selling price = $105,624.48 - $100,404 = $5,220.48
c.
Journalize the entry to record the sale as follows:
Account Titles and Explanation | Debit | Credit |
Cash | 100,404 | |
Accumulated Depreciation - Equipment | 481,875.52 | |
Loss on Sale of Equipment | 5,220.48 | |
Equipment | 587,500 |
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