Question

CHAPTER 10 TEAM PROBLEM Papa Jack's Pizza is in the process of closing its operations. It sold its three-year-old ovens to Sicily Pizza for $341,000. The ovens originally cost $455,000 and had an estimated service life of 10 years and an estimated residual value of $30,000. Papa Jack's uses straight-line depreciation for all equipment. Required: 1. Calculate the balance in the Accumulated Depreciation account at the end of the third year. 2. Calculate the book value of the ovens at the end of the third year. 3. What is the gain or loss on the sale of the ovens at the end of the third year? 4. Complete the journal entry to record the sale of the ovens at the end of the third year.

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Answer 1

1 Annual depreciation = (Cost-Residual value)/Estimated life = (455000-30000) / 10 $ 42,500 Accumulated depreciation = Annual depreciation X No of years = 42500 X 3 $ 127,500 2 Book value = Cost - Accumulated depreciation = 455000-127500 $ 327,500 3 Gain on sale = Sale value - Book value = 341000-327500 $ 13,500 Credit 341,000 127,500 4 Account tile and explanation Cash Accumulated depreciation Gain on sale Ovens (To record the sale of oven) 13,500 455,000