Question

On July 1, 2016, Steelman Company acquired a new equipment for $150,000 and estimated it would have a useful life of 10 years and residual value of $8,900. At the beginning of 2019, the company decided that the equipment would be used for nine more years (including all of 2019), and at the end of this time its residual value would be only $1,325. On November 1, 2020, the equipment was sold for $85,000. The company uses the straight-line method of depreciation and closes its books on December 31. Give the necessary journal entries for the acquisition, depreciation, and disposal of this asset for the years 2016, 2019, and 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry"for the account titles and enter Ofor the amounts.) Account Titles and Explanation Debit Credit Date July 1, 2016 Dec 31, 2016 Dec 31, 2019 Nov. 1, 2020 (To record depreciation expense) Nov. 1, 2020 (To record sale of equipment)

Answer 1

Solution Account Titles and Explanation Debit Credit Date Equipment July 1, 2016 $150,000 $150,000 Cash (To record purchase of equipment) Dec 31, 2016 Depreciation expense $7,055 Accumulated Depreciation Equipment $7,055 (To record depreciation expense for year 2016) Dec 31, 2019 Depreciation expense (WN-1) $12,600 Accumulated Depreciation Equipment $12,600 (To record depreciation expense for year 2019) Depreciation expense (WN-2) Accumulated Depreciation Equipment (To record depreciation expense) $10,500 Nov 1, 2020 $10,500 $85,000 Cash Accumulated Depreciation Equipment Loss on sale of equipment (WN-2) Equipment (cost) (To record sale of equipment) Nov 1, 2020 $58,375 $6,625 $150,000 WN-1: Calculation of depreciation expense for Year 2019 Cost of equipment $150,000 $8,900 Residual value Depreciable cost ($150,000 - $8,900) $141,100 Estimated Useful life 10 Years Yearly Depreciation $141,100/10 Years $14,110 Step-1: Calculate the Book value of equipment at the beginning of Year 2019 Depreciation expense for the Year 2016 ($14,110 x 6/12) $7,055 $14,110 Depreciation expense for the Year 2017 Depreciation expense for the Year 2018 Accumulated depreciation till 2018 end $14,110 $35,275

WDV at the beginning of year 2019 ($150,000 -$35,275) $114,725 Step-2 : Calculate the Depreciation expense for year 2019 WDV/Book value at the beginning of Year 2019 $114,725 Less: Revised Residual value at the beginning of Year 2019 ($1,325) Revised depreciable cost at the beginning of Year 2019 $113,400 Revised remaining useful life at the beginning of 2019 9 Years Depreciation expense for 2019 $113,400 /9 Years $12,600 WN-2: Calculation of gain/loss on sale of equipment WDV at the beginning of Year 2020 ($114,725 - $12,600) $102,125 Depreciation charged in year 2020 ($12,600 x 10 m/12m) $10,500 WDV of the equipment on date of sale ($102,125 -$10,500) $91,625 Sales proceeds from sale of equipment $85,000 Loss on sale of equipment ($91,625 - $85,000) $6,625