Question

Equipment acquired on January 8 at a cost of $100,870, has an estimated useful life of 12 years, has an estimated residual value of $9,550, and is depreciated by the straight-line method. A. What was the book value of the equipment at December 31 the end of the fourth year? B. Assuming that the equipment was sold on April 1 of the fifth year for $61,657, journalize the entries to record (1) depreciation for the three months until the sale date, and (2) the sale of the equipment. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

A) Depreciation per year under Straight Line = (Cost - Residual Value)/Useful Life in years

= ($100,870-$9,550)/12 yrs = $7,610 per year

Accumulated Depreciation at the end of 4th year = $7,610*4 yrs = $30,440

Book Value at the end of Fourth Year = Cost - Accumulated Depreciation upto 4th year

Book Value at the end of 4th year = $100,870 - $30,440 = $70,430

Therefore the book value of the equipment at December 31 of the end of the fourth year is $70,430.

B) Depreciation for 3 months up to April 1 = Depreciation per year*3/12 months

= $7,610*3/12 = $1,902.50 or 1,903 (rounded off)

Journal Entries (Amounts in $)

Journal					Accounting Equation
Date	Description	Post Ref.	Debit	Credit	Assets	Liabilities	Equity
Apr. 1	Depreciation Expense-Equipment		1,903				Decrease
	Accumulated Depreciation-Equipment			1,903	Decrease
	(To record the depreciation expense)
Apr. 1	Cash		61,657		Increase
	Accumulated Depreciation-Equipment (30,440+1,903)		32,343		Increase
	Loss on Sale of Equipment (Bal fig) (100,870-61,657-32,343)		6,870				Decrease
	Equipment			100,870	Decrease
	(To record the sale of equipment)