Question

Mercury Inc. purchased equipment in 2016 at a cost of $165,000. The equipment was expected to produce 300,000 units over the next five years and have a residual value of $45,000. The equipment was sold for $96,800 part way through 2018. Actual production in each year was: 2016 = 42,000 units, 2017 = 67,000 units, 2018 = 34,000 units. Mercury uses units-of-production depreciation, and all depreciation has been recorded through the disposal date. Required 1. Prepare the journal entry to record the sale. 2. Assuming that the equipment was sold for $115,800, prepare the journal entry to record the sale. Complete this question by entering your answers in the tabs below. Required 1Required 2 Assuming that the equipment was sold for $115,800, prepare the journal entry to record the sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Given,

Cost of equipment = $ 165000

Residual value = $ 45000

Expected production = 300,000

So, depreciation rate per unit using units of production depreciation

                                                                = (165000-45000)/300,000

                                                                = $0.4 per unit

Accumulated depreciation till 2018 end = (42000 + 67000 +34000) * 0.4 = $57200

Carrying value as on date of sale = 165000 – 57200 = $ 107,800

Requirement 1

The equipment was sold for $96800

Year 2018

Cash Accumulated depreciation – equipment Loss on sale               Equipment (To record the sale of equipment)

96800 57200 11000

165000

Requirement 2

The equipment was sold for $115,800

Year 2018

Cash Accumulated depreciation – equipment               Equipment               Gain on sale (To record the sale of equipment)

115,800 57200

165000 8000

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