Question

Exercise 11-10 Disposal of property, plant, and equipment [L011-2] Mercury Inc. purchased equipment in 2016 at a cost of $497,000. The equipment was expected to produce 580,000 units over the next five years and have a residual value of $33,000. The equipment was sold for $253,600 part way through 2018. Actual production in each year was: 2016 -83,000 units; 2017 133,000 units; 2018 67,000 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 $280,000, prepare the journal entry to record the sale.

Answer 1

Answer

• Workings

A	Original cost	$           497,000.00
B	Salvage value	$              33,000.00
C = A - B	Depreciable base	$           464,000.00
D	Usage in units	580,000
E = C/D	Depreciation per unit	$                        0.80
F = 83000 + 133000 + 67000	No. of units produced till sale	283,000
G = E x F	Accumulated Depreciation till date of sale	$           226,400.00

• Requirement 1

Accounts title	Debit	Credit
Cash	$           253,600.00
Accumulated Depreciation - Equipment	$           226,400.00
Loss on sale of Equipment	$              17,000.00
Equipment		$                        497,000.00

• Requirement 2

Accounts title	Debit	Credit
Cash	$           280,000.00
Accumulated Depreciation - Equipment	$           226,400.00
Gain on sale of Equipment		$                             9,400.00
Equipment		$                        497,000.00