Question

On January 1, 2019, Birdie purchased a used piece of equipment for $65,000. The next day, it was repaired at a cost of $2,000 and mounted on a new platform that cost $2,400. It was estimated that the equipment would be used for four years and would then have a $9,000 residual value. Depreciation was to be charged on a straight-line basis to the nearest whole month. A full year’s depreciation was charged on December 31, 2019, through December 31, 2020, and on April 1, 2021 the equipment was retired from service.

REQUIRED:

1. Prepare the journal entries to record the purchase of the equipment, the cost of repairing it, and the installation. Assume that cash was paid.
2. Prepare entries to record depreciation on the equipment on December 31, 2019 and on April 1, 2021.
3. Prepare entries to record the retirement of the equipment under each of the following unrelated assumptions:

1. It was sold for $15,000.
2. It was sold for $50,000.

Answer 1

Journal entry

Date	General Journal	Debit	Credit
Jan 1	Equipment	65000
	Cash		65000
Jan 2	Equipment	2000
	Cash		2000
	Equipment	2400
	Cash		2400

Journal entry

Date	General Journal	Debit	Credit
Dec 31,2019	Depreciation expense (69400-9000/4)	15100
	Accumulated depreciation-equipment		15100
Apr 1,2021	Depreciation expense (15100*3/12)	3775
	Accumulated depreciation-equipment		3775

Journal entry

No	General Journal	Debit	Credit
a	Cash	15000
	Accumulated depreciation-equipment (15100*2+3775)	33975
	Loss on disposal of equipment	20425
	Equipment		69400
b	Cash	50000
	Accumulated depreciation-equipment	33975
	Gain on disposal of equipment		14575
	Equipment		69400