New Morning Bakery is in the process of closing its operations. It sold its two-

Question

New Morning Bakery is in the process of closing its operations. It sold its two-year-old bakery ovens to Great Harvest Bakery for $650,000. The ovens originally cost $855,000, had an estimated service life of 10 years, and an estimated residual value of $55,000. New Morning Bakery uses the straight-line depreciation method for all equipment.

Calculate the balance in the accumulated depreciation account at the end of the second year.

1.

Calculate the balance in the accumulated depreciation account at the end of the second year.

4. Record the sale of the ovens at the end of the second year.

Explanation / Answer

1) depreciation using straight line method = cost - salvage value

                                                                               useful life

hence deprecaiton    = $855,000 - $55,000    = $80,000

                                             10

hence depreciation for two years = 80,000 * 2   = $160,000

book value = $850,000 - $160,000 = $690,000

4) Recording of sale revenue

Cash $650,000 Loss on sale of ovens     40,000 Accumulated depreciation on oven $160,000 To Ovens $855,000

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