Question

Disposal of Fixed Asset

Equipment acquired on January 6 at a cost of $358,800, has an estimated useful life of 10 years and an estimated residual value of $46,800.

a. What was the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation?

Year	Depreciation Expense
Year 1	$
Year 2	$
Year 3	$

b. What was the book value of the equipment on January 1 of Year 4?
$

c. Assuming that the equipment was sold on January 3 of Year 4 for $251,900, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

d. Assuming that the equipment had been sold on January 3 of Year 4 for $270,500 instead of $251,900, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

Answer 1

a. What was the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation?

Year	Depreciation Expense
Year 1	(358800-46800/10) = 31200
Year 2	$31200
Year 3	$31200

b) Book value on January 1, Year 4 = 358800-(31200*3) = 265200

c) Journal entry

Date	account and explanation	debit	credit
jan 3, Year 4	Cash	251900
	Accumulated depreciation-Equipment	93600
	Loss on sale of equipment	13300
	Equipment		358800
	(To record sale of equipment)

d) Journal entry

Date	account and explanation	debit	credit
jan 3, Year 4	Cash	270500
	Accumulated depreciation-Equipment	93600
	Gain on sale of equipment		5300
	Equipment		358800
	(To record sale of equipment)