Question

Howarth Manufacturing Company purchased equipment on June 30, 2017, at a cost of $800,000. The residual value of the equipment was estimated to be $50,000 at the end of a five-year life. The equipment was sold on March 31, 2021, for $170,000. Howarth uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the asset is in service.

Required:

1. Prepare the journal entry to record the sale.

2. Assuming that Howarth had instead used the double-declining-balance method, prepare the journal entry to record the sale.

Answer 1

1.)	Cost	$ 800,000
	Residual value	50,000
	Life	5 Years
	Annual Depreciation	150,000	=(800000-50000)/5
	Depreciation for 2017	75,000	=150000*6/12
	Depreciation for 2018	150,000
	Depreciation for 2019	150,000
	Depreciation for 2020	150,000
	Depreciation for 2021	37,500	=150000*3/12
	Total Depreciation	562,500

	Account Titles	Debit $	Credit $
	Cash	170,000
	Accumulated Depreciation	562,500
	Loss on sale of Equipment	67,500
	Equipment		800,000

2.)	Cost	800,000
	Residual value	50,000
	Life	5 Years
	Depreciation rate	40%	=1/5*2
	Depreciation for 2017	160,000	=800000*40%*6/12
	Depreciation for 2018	256,000	=(800000-160000)*40%
	Depreciation for 2019	153,600	=(800000-160000-256000)*40%
	Depreciation for 2020	92,160	=(800000-160000-256000-153600)*40%
	Depreciation for 2021	13,824	=(800000-160000-256000-153600-92160)*40%*3/12
	Total Depreciation	675,584

	Account Titles	Debit $	Credit $
	Cash	170,000
	Accumulated Depreciation	675,584
	Equipment		800,000
	Gain on sale of Equipment		45,584