Equipment acquired on January 5 at a cost of $151,710, has an estimated useful l
ID: 2405319 • Letter: E
Question
Equipment acquired on January 5 at a cost of $151,710, has an estimated useful life of 16 years, has an estimated residual value of $9,950, 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 107,900. 1. Journalize the entry to record depreciation for the three months until the sale date. Round your answers to the nerest whole dollar if required. 2. Journalize the entry to record the sale of the equipment. If an amount box does not require an entry, leave it blank. Do not round intermediate calculations.
Explanation / Answer
a.
Cost of equipment = $151,710
Residual value = $9,950
Useful life = 16 years
Annual depreciation = (Cost of equipment – Residual value)/Useful life
Annual depreciation = ($151,710-$9,950)/16 years = $8,860
Accumulated depreciation at the end of year 4 = $8,860 * 4 years = $35,440
Book value at the end of year 4 = Cost of equipment – Accumulated depreciation
Book value at the end of year 4 = $151,710 - $35,440 = $116,270
b.
1. Depreciation for 3 months = $8,860 * 3 months/12 months = $2,215
Date
Account titles and explanation
Debit
Credit
April 1
Depreciation expense
$ 2,215.00
Accumulated depreciation
$ 2,215.00
2.
Accumulated depreciation as on April 1 of fourth year = $35,440 + $2,215 = $37,655
Date
Account titles and explanation
Debit
Credit
April 1
Cash
$ 107,900.00
Accumulated depreciation
$ 37,655.00
Loss on sale of equipment
$ 6,155.00
Equipment
$ 151,710.00
Date
Account titles and explanation
Debit
Credit
April 1
Depreciation expense
$ 2,215.00
Accumulated depreciation
$ 2,215.00
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