Question

Sale of Equipment Equipment was acquired at the beginning of the year at a cost of $537,500. The equipment was depreciated using the straight-line method based on an estimated useful life of 9 years and an estimated residual value of $46,620. 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 $94,762. Round your answer to the nearest cent and enter as a positive amount. 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.

Answer 1

a. Calculation of Depreciation Expense for Year 1 Under Straight Line Method: Annual Depreciation Expense = (Cost - Residual Value)/Useful Life = ($537,500 - $46,620)/9 Years = $ 54,542.22 b. Calculation of Gain or Loss on sale of Equipment at Year 8 for $94,762: Book Value at the End of Year 8 = Cost - (8 x Annual Depreciation Expense) = $537,500 - (8 x $54,542.22) 101,162.24 Loss on Sale = Book Value - Sale Price = $101,162.24 - $94,762 6,400.24 So, LOSS of $6,400.24

Journal Entries Date Account Title and Explaination Debit Credit Post. Ref. $ Cash Accumulated Depreciation - Equipment Loss on Sale or Disposal Equipment (To record Sale of Equipment for $94,762) 94,762.00 436,337.76 6,400.24 $ 537,500.00