Question

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Disposal of Fixed Asset Equipment acquired on January 6 at a cost of $154,600 has an estimated useful life of 7 years and an estimated residual value of $20,200. 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 $92,200, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank. Jan. 3 d. Assuming that the equipment had been sold on January 3 of Year 4 for $98,900 instead of $92,200, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank. Jan. 3

Answer 1

a.

Annual depreciation = ( Cost price - Salvage value)/ Useful life

= (154,600-20,200)/7

= $19,200

Year	Depreciation Expense
Year 1	$19,200
Year 2	$19,200
Year 3	$19,200

b.

Accumulated depreciation for 3 years = Annual depreciation x 3

= 19,200 x 3

= $57,600

Book value of the equipment at January 1, year 4 = Cost of equipment - Accumulated depreciation

= 154,600-57,600

= $97,000

c.

Loss on sale of equipment = Book value of the equipment at January 1, year 4 - Sale price

= 97,000-92,200

= $4,800

Journal

Date	General Journal	Debit	Credit
Jan.3	Cash	$92,200
	Accumulated depreciation - equipment	$57,600
	Loss on sale	$4,800
	Equipment		$154,600

d.

Gain on sale of equipment = sale price - Book value of the equipment at January 1, year 4

= 98,900-97,000

= $1,900

Journal

Date	General Journal	Debit	Credit
Jan.3	Cash	$98,900
	Accumulated depreciation - equipment	$57,600
	Equipment		$154,600
	Gain on sale		$1,900

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