Question

View Policies Current Attempt in Progress Sheffield Corp. owns equipment that cost $62,900 when purchased on January 1, 2016. It has been depreciated using the straight-line method based on an estimated salvage value of $4,700 and an estimated useful life of 5 years. Accumulated deprecation was last adjusted on December 31, 2018. Prepare Sheffield Corp's journal entries to record the sale of the equipment in these four independent situations. (Credit account titles are automaticaly indented when amount is entered. Do not indent manually, Round answers to 0 decimal places, eg.125. lf no entry is required, select No Entry' for the account titles and enter 0 for the amounts) (a) Sold for $29,920 on January 1,2019. (b) Sold for $29,920 on May 1, 2019. Sold for $11,000 on January 1, 2019. (c) Sold for $11,000 on October 1,219. (d) Debit Credit No. Account Titles and Explanation (a) (b) (To record depreciation)

Answer 1

Under the straight line method, depreciation is calculated by the following formula:

Depreciation = Cost - Salvage value / Useful life

Cost = $62900, Salvage value = $4700, useful life = 5

Depreciation = ($62900 - $4700) / 5 = $11640

Under straight line method, depreciation remains the same for every year.

Accumulated depreciation is depreciation charged till date. So accumulated depreciation on December 31, 2018 is depreciation for 3 years i.e. 2016, 2017 and 2018.

Accumulated depreciation on December 31, 2018 = 3 * $11640 = $34920

(a) Sold for $29920 on January 1,2019:

Cost = $62900

Accumulated depreciation = $34920

Book value = Cost - Accumulated depreciation

Book value = $62900 - $34920 = $27980

Gain or loss on sale = Sale price - Book value

Gain or loss on sale = $29920 - $27980 = $1940 (gain)

Required journal entry is:

Date	Description	Debit	Credit
a	Cash	29920
	Accumulated Depreciation	34920
	Gain on sale		1940
	Equipment		62900
	(for equipment sold and gain recorded)

(b) Sold for $29920 on May 1,2019:

Cost = $62900

Accumulated depreciation on December 31,2018= $34920

Depreciation till May 1, 2019 (i.e. 4 months) = $11640 * 4 / 12 = $3880

Accumulated depreciation on May 1, 2019 = $34920 + $3880 = $38800

Book value = Cost - Accumulated depreciation

Book value = $62900 - $38800 = $24100

Gain or loss on sale = Sale price - Book value

Gain or loss on sale = $29920 - $24100 = $5820 (gain)

Required journal entry is:

Date	Description	Debit	Credit
b	Cash	29920
	Accumulated depreciation	38800
	Gain on sale		5820
	Equipment		62900
	(for sale of equipment and gain recorded)

(c) Sold for $11000 on January 1,2019:

Cost = $62900

Accumulated depreciation on December 31, 2018 = $34920

Book value = Cost - Accumulated depreciation

Book value = $62900 - $34920 = $27980

Gain or loss on sale = Sale price - Book value

Gain or loss on sale = $11000 - $27980 = - $16980 (loss)

Required journal entry is:

Date	Description	Debit	Credit
c	Cash	11000
	Accumulated depreciation	34920
	Loss on sale	16980
	Equipment		62900
	(for equipment sold and loss recorded)

(d) Sold for $11000 on October 1,2019:

Cost = $62900

Accumulated depreciation on December 31,2018= $34920

Depreciation till October 1, 2019 (i.e. 9 months) = $11640 * 9 / 12 = $8730

Accumulated depreciation on October 1, 2019 = $34920 + $8730 = $43650

Book value = Cost - Accumulated depreciation

Book value = $62900 - $43650 = $19250

Gain or loss on sale = Sale price - Book value

Gain or loss on sale = $11000 - $19250 = - $8250 (loss)

Required journal entry is:

Date	Description	Debit	Credit
d	Cash	11000
	Accumulated depreciation	43650
	Loss on sale	8250
	Equipment		62900
	(for equipment sold and loss recorded)