Question

Equipment was acquired at the beginning of the year at a cost of $78,660. The equipment was depreciated using the straight-line method based on an estimated useful life of six years and an estimated residual value of $7,920.

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 $59,486, 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.

CHART OF ACCOUNTS
General Ledger
ASSETS 110 Cash 111 Petty Cash 112 Accounts Receivable 114 Interest Receivable 115 Notes Receivable 116 Merchandise Inventory 117 Supplies 119 Prepaid Insurance 120 Land 121 Equipment 122 Accumulated Depreciation 132 Goodwill 133 Patents LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 310 Owner, Capital 311 Owner, Drawing 312 Income Summary	REVENUE 410 Sales 610 Interest Revenue 620 Gain on Sale of Equipment EXPENSES 510 Cost of Merchandise Sold 520 Salaries Expense 521 Advertising Expense 522 Supplies Expense 523 Delivery Expense 524 Rent Expense 525 Insurance Expense 531 Repairs and Maintenance Expense 541 Depreciation Expense 543 Depletion Expense 544 Amortization Expense-Patents 591 Miscellaneous Expense 710 Interest Expense 720 Loss on Sale of Equipment

What was the depreciation expense for the first year?

Assuming the equipment was sold at the end of the second year for $59,486, determine the gain or loss on sale of the equipment.

  

Journalize the entry to record the sale on December 31. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 1

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4

Assuming the equipment was sold at the end of the second year for $59,486, determine the gain or loss on sale of the equipment.

  

Answer 1

	Equipment Cost=	$                          78,660.00
	Residual value=	$                             7,920.00
	Useful life=	6	Years
	Straight Line Depreciation Formula=(Cost-Residual Value)/Useful life
	Depreciation=($78660-$7920)/6=	$                          11,790.00
	Depreciation Schedule-Straight line
	End of Year Amount
	Year	Depreciation Expense	Accumulated Depreciation	Book Value
	1	$                          11,790.00	$                                11,790.00	$                   66,870.00
	2	$                          11,790.00	$                                23,580.00	$                   55,080.00
a)	Depreciation for first year=$11790
b)	Year	Depreciation Expense	Accumulated Depreciation	Book Value
	1	$                          11,790.00	$                                11,790.00	($78660-$11790)
	2	$                          11,790.00	$                                23,580.00	($66870-$11790)
	Sales Value	$                          59,486.00
	Less: Book Value	$                          55,080.00
	Gain on sale	$                             4,406.00
c)	General,Journal	Debit	Credit
	Cash	$                          59,486.00
	To Equipment		$                                55,080.00
	To Gain on sale of Equipment		$                                   4,406.00