Question

Presented here are selected transactions for Cullumber Limited for 2018. Cullumber uses straight-line depreciation and records adjusting entries annually. Jan. 1 Sept. 1 Dec. 30 Sold a delivery truck for $18,840 cash. The truck cost $64,060 when it was purchased on January 1, 2015, and was depreciated based on a four-year useful life with a $5,800 residual value. Sold computers that were purchased on January 1, 2016. They cost $11,187 and had a useful life of three years with no residual value. The computers were sold for $480 cash. Retired equipment that was purchased on January 1, 2009. The equipment cost $145,500 and had a useful life of 10 years with no residual value. No proceeds were received.

Answer 1

Note-1 Delivery truck purchased on 01-01-15 Truck cost 64,060 A Residual value Life time $ 5,800 4 years (Cost of asset - residual value) / Life time Straight line method depreciation (64060 - 5800) / 4 Depreciation per year 14,565 Asset sold on 01-01-18 Accumulated depreciation for 3 years (01-01-2015 to 01-01-2018) 43,695 B (S 14,565*3) $ Book value as on 01-01-2018 $ 20,365 (Truck cost - Accumulated depreciation) (A-B) Sale value $ 18,840 Gain / (loss) (1,525 $

Journal entries supposed to be passed is Accounts tittle Debit Credit Cash Loss on disposal Accumulated depreciation-Vehicles Vehicles 18,840 $ 1,525 $ 43,695 $ 64,060 But entry posted is (i) At the time of sale Accounts tittle Debit Credit Cash $ 18,840 Miscellaneous revenue $ 18,840 Depreciation also recorded (ii) Depreciation on asset sold Debit Accounts tittle Credit Depreciation expense Accumulated depreciation-Vehicles $ 14,565 $ 14,565 Miscellaneous revenue Overstated Overstated Accumulated depreciation-Vehicles Vehicles Overstated Overstated Understated Depreciation expense Loss on disposal