Question

Entries for Sale of Fixed Asset Equipment acquired on January 8 at a cost of $176,020, has an estimated useful life of 19 years, has an estimated residual value of $7,300, and is depreciated by the straight- line method. a. What was the book value of the equipment at December 31 the end of the fourth year? b. Assuming that the equipment was sold on April 1 of the fifth year for 132,000. 1. Journalize the entry to record depreciation for the three months until the sale date. Round your answers to the nerest whole dollar if required. 2. Journalize the entry to record the sale of the equipment. If an amount box does not require an entry, leave it blank. Do not round intermediate calculations.

Answer 1

Entries for sale of fixed assets

A) Formula for depreciation under straight line method :

[ original cost + installation charges - residual value] / no of working life in years

= [ $ 176,020 + $ 0 - $ 7,300] / 19 = $ 8,880

For four years under straight line method total accumulated depreciation = $ 8,880 X 4 = $ 355,20

The book value of equipment at 31st December the end of 4th year was

original cost of equipment - accumulated depreciation

= $ 176,020 - $ 355,20 = $ 140,500

B) ( i )

Date	Details	Amounts ( Dr)	Amounts ( Cr)
1st April 5th year	Depreciation expenses	$ 2,220
	Accumulated depreciation		$ 2,220

Depreciation for 1st January to 31st March in 5th year ( under straight line method) :-

Annual depreciation X 3/12 = $ 8,880 X 3/12 = $ 2,220

B) (ii)

Date	Details	Amounts (Dr)	Amounts (Cr)
1st April in 5th year	Cash	$ 132,000
	Accumulated depreciation ($ 35,520 + $ 2,220)	$37,740
	Loss on sale of equipment	$ 6,280
	Equipment		$ 176,020

Depletion entries

A)  Total amount of mining right = $ 13,392,000

Estimated mineral deposit = 83,700,000 tons.

So, cost allocated to1 ton of mineral extraction = $ 13,392,000/ 83,700,000 = $ 0.16

So, current year depletion expenses = 12,550,000 tons X $ 0.16 = $ 20,08,000

B)

Date	Details	Amounts (Dr)	Amounts ( Cr)
31st December	Depletion	$ 20,08,000
	Accumulated depletion.		$ 20,08,000