Equipment acquired on January 3, 2005, at a cost of $147,500, has an estimated u

Question

Equipment acquired on January 3, 2005, at a cost of $147,500, has an estimated useful life of eight years and an estimated residual value of $17,500/

a. What was the annual amount of depreciation for the years 2005, 2006, and 2007, using the straight-line method of depreciation?

b. What was the book value of depreciation on January 1, 2008?

c. Assuming that the equipment was sold on January 2, 2008, for $95,000, journalize the entry to record the sale.

d. Assuming that the equipment had been sold on January 2, 2008, for $100,000 instead of $95,000, journalize the entry to record the sale.

Explanation / Answer

a. Annual Depreciation/Accumulated Depreciation for 2005: $16250
Formula: (Acquisition Cost - Residual Value)/Useful Life

Accumulated Depreciation for 2006: $32500
Formula: (Annual Depreciation*2)

Accumulated Depreciation for 2007: $48750
Formula: (Annual Depreciation*3)

Note: Depreciation Expense is not the same as the Accumulated Depreciation. Depreciation Expense would be THE SAME every year which is your Annual Depreciation. What I have computed above is your Accumulated Depreciation

b. Book Value: $98750
Formula: Book Value/Carrying Value = Acquisition Cost - Total Accumulated Depreciation

c. DR Cash $95000 DR Accumulated Depreciation $48750 DR Loss on Sale of Equipment $3750 CR Equipment $147500

d. DR Cash $100000 DR Accumulated Depreciation $48750 CR Equipment 147500 CR Gain on Sale of Equipment $1250

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.