Shown below are the T accounts relating to equipment that was
purchased for cash by a company on the first day of the current
year. The equipment was depreciated on a straight-line basis with
an estimated useful life of 10 years and a residual value of $360.
Part of the equipment was sold on the last day of the current year
for cash proceeds while the remaining equipment that was not sold
became impaired.
Reconstruct the journal entries to record the following and derive
the missing amounts:
(a) | Purchase of equipment on January 1. What was the cash paid? | ||
(b) | Depreciation recorded on December 31. What was the depreciation expense? | ||
(c) | Sale of part of the equipment on December 31. What was the gain on disposal? | ||
(d) | Partial impairment loss on the remaining equipment on December 31. What was the impairment loss? |
DATE |
PARTICULAR |
DEBIT ($) |
CREDIT ($) |
Jan 01 |
Equipment |
2,460 |
|
Cash |
2,460 |
||
Dec 31 |
Depreciation Expense |
210 |
|
Equipment |
210 |
||
Dec 31 |
Cash |
994 |
|
Equipment |
984 |
||
Gain on Sale of equipment |
10 |
||
Dec 31 |
Impairment Loss |
||
Equipment |
WORKING NOTES:
(1) Cost of machine = $2,460
Thus, annual depreciation = (2460 - 360) / 10
= $210.
(2) Cost of machine sold = $984
Gain in sale = $10 (can be seen as difference between cash proceeds and equipment sale)
(3) Carrying value of asset = $1,420
Market value of the asset = $
Thus, Impairment loss = $
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