The following transactions were completed by King Furniture Company during a thr

Question

The following transactions were completed by King Furniture Company during a three year period.  All are related to the used of delivery equipment.  The double declining method of depreciation is used.

2008
Jan. 7 Purchased a used delivery truck for $61,440
Dec. 31 Recorded depreciation on the truck for the fiscal year. (used double declining method) The estimated useful life of the truck is 8 years, with a residual value of $12,900 for the truck.
2009
Apr. 30 Sold the used truck for $40,440 (Record depreciation in 2009 for the truck)

I know how to journalize the Jan 7 and Dec 31 transactions but I'm stuck once it gets to April 30.

The answer is:   April 30   Depreciation Expense-Delivery Equipment........3840

                                       Accumulated Depreciation-Delivery Equipment...........3840

and..............April 30    Accumulated Depreciation-Delivery Equipment...19200

                                      Cash.....................................................40440

                                      Loss on Sale of Delivery Equipment...................1800

                                      Delivery Equipment...........................................61440

I understand how to journalize everything except for how they came up for $3,840 as the depreciation expense for 2009.  If someone could help me with this I would greatly appreciate it! thanks, anna

Explanation / Answer

Because the company is using double declining it will depreciate the asset by 25% each year. (100/8=12.5 x 2 = 25%) 2008 With double declining you are ignoring the residual value so depreciation for 2008 is 61,440 x 0.25 = 15,360 Journal entry is Depreciation expense 15,360 Accum. depreciation 15,360 2009 New book value is 61,440 - 15,360 = 46,080 depreciation for the whole year is 46,080 x 0.25 = 11,520 Because the company is selling the truck in April, it will only depreciate the asset for 4 months (January, February, March and April) so 11,520 x 4/12 = 3,840 Book value at the time of sale is 46,080 - 3,840 = 42,240 Or cost - accumulated deprc. 61,440 - 19,200 = 42,240 Book value is 42,240 Selling price 40,440 Loss on sale 1,800 Journal entry: Cash 40,440 Accum. depr 19,200 Loss on sale 1,800 Truck 61,440

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