Computer equipment (office equipment) purchased 6 1/2 years ago for $170,000, wi
ID: 2446015 • Letter: C
Question
Computer equipment (office equipment) purchased 6 1/2 years ago for $170,000, with an estimated life of 8 years and a residual value of $10,000, is now sold for $60,000 cash. (Appropriate entries for depreciation had been made for the first six years of use.) Journalize the following entries:
(a) Record the depreciation for the one-half year prior to the sale, using the straight-line method.
(b) Record the sale of the equipment.
(c) Assuming that the equipment had been sold for $30,000 cash, prepare the entry for (b) above to record the sale.
Explanation / Answer
The amount of annual depreciation expense is determined by calculating the cost less salvage value divided by the equipments estimated useful life. The annual depreciation expense is the basis for determining the journal entries for this problem.
(170,000-10,000)/8 = $20,000 annual depreciation expense
To calculate the amount of depreciation expense to charge for the half year prior to recording the sale, divide the annual depreciation expense by two.
20,000/2 = $10,000
a)
(dr) depreciation expense 10,000
(cr) accumulated depreciation-equipment 10,000
To record a sale of equipment you first determine the accounts accumulated depreciation account balance. Multiply the number of years the equipment has been depreciated by the annual depreciation amount.
6.5 x 20,000 = 130,000
This amount needs to be removed from the accumulated depreciation account. The equipment is removed out of inventory at cost. If the left side of the equation totals a smaller amount than the right side of the equation, the difference is recorded as a loss on sale of equipment as a debit entry. Conversely, if the right side of the equation totals a smaller amount than the sum of the journal entries on the left side of the journal entries, the difference is recorded as a gain on sale of equipment as a credit entry.
b)
(dr) cash 60,000
(dr) accumulated depreciation - equipment 130,000
(cr) equipment 170,000
(cr) gain on sale of equipment 20,000
c)
(dr) cash 25,000
(dr) accumulated depreciation - equipment 130,000
(dr) loss on sale of equipment 15,000
(cr) equipment 170,000
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