Pryce Company owns equipment that cost $72,750 when purchased on January 1, 2012
ID: 2466111 • Letter: P
Question
Pryce Company owns equipment that cost $72,750 when purchased on January 1, 2012. It has been depreciated using the straight-line method based on estimated salvage value of $9,000 and an estimated useful life of 5 years.
Prepare Pryce Company’s journal entries to record the sale of the equipment in these four independent situations. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g.125.)
(a)
Sold for $39,250 on January 1, 2015.
(b)
Sold for $39,250 on May 1, 2015.
(c)
Sold for $10,470 on January 1, 2015.
(d)
Sold for $10,470 on October 1, 2015.
A.
Account Titles and Explanation
Debit
Credit
B.
(To Record Depreciation)
(To record sale of equipment)
C.
D.
(To Record Depreciation)
(To record sale of equipment)
(a)
Sold for $39,250 on January 1, 2015.
(b)
Sold for $39,250 on May 1, 2015.
(c)
Sold for $10,470 on January 1, 2015.
(d)
Sold for $10,470 on October 1, 2015.
Explanation / Answer
Solution:
Working:
Cost of Equipment (Purchase January 1, 2012)
$72,750
Useful Life
5 Years
Salvage Value at the end of useful life
$9,000
Annual Depreciation as per straight line basis
(Cost of Asset - Salvage Value)/Useful life
$12,750
a) Sold for $39,250 on January 1, 2015
Book Value of Equipment as on January 1, 2015 = Cost of Equipment – Accumulated depreciation for 3 years completed years = $72,750 – ($12,750 x 3) = $72,750 - $38,250 = $34,500
Profit on Sale of Equipment = Sale Price – Book Value of Equipment = $39,250 - $34,500 = $4,750
Journal Entry to record the sale
Account Titles and Explanation
Debit
Credit
Cash A/c Dr.
$39,250
To Equipment A/c
$34,500
To Profit on Sale of Equipment
$4,750
(being equipment sold at profit of $4,750
b) Sold for $39,250 on May 1, 2015
Book Value of Equipment as on January 1, 2015 = Cost of Equipment – Accumulated depreciation for 3 years completed years = $72,750 – ($12,750 x 3) = $72,750 - $38,250 = $34,500
Profit on Sale of Equipment = Sale Price – Book Value of Equipment = $39,250 - $34,500 = $4,750
Journal Entry to record the sale
Account Titles and Explanation
Debit
Credit
Cash A/c Dr.
$39,250
To Equipment A/c
$34,500
To Profit on Sale of Equipment
$4,750
(being equipment sold at profit of $4,750
Explanation: To claim depreciation of the year, the depreciable fixed assets must be used during the full year. That is the reason we calculated depreciation till December 31, 2014 (3 Completed years).
C) Sold for $10,470 on January 1, 2015
Book Value of Equipment as on January 1, 2015 = Cost of Equipment – Accumulated depreciation for 3 years completed years = $72,750 – ($12,750 x 3) = $72,750 - $38,250 = $34,500
Loss on Sale of Equipment = Book Value of Equipment – Sale Proceeds = $34,500 - $10,470 = $24,030
Journal Entry to record the sale
Account Titles and Explanation
Debit
Credit
Cash A/c Dr.
$10,470
Loss on Sale of Equipment Dr.
$24,030
To Equipment A/c
$34,500
(being equipment sold at loss of $24,030
Explanation: To claim depreciation of the year, the depreciable fixed assets must be used during the full year. That is the reason we calculated depreciation till December 31, 2014 (3 Completed years).
d) Sold for $10,470 on October 1, 2015
Book Value of Equipment as on January 1, 2015 = Cost of Equipment – Accumulated depreciation for 3 years completed years = $72,750 – ($12,750 x 3) = $72,750 - $38,250 = $34,500
Loss on Sale of Equipment = Book Value of Equipment – Sale Proceeds = $34,500 - $10,470 = $24,030
Journal Entry to record the sale
Account Titles and Explanation
Debit
Credit
Cash A/c Dr.
$10,470
Loss on Sale of Equipment Dr.
$24,030
To Equipment A/c
$34,500
(being equipment sold at loss of $24,030
Explanation: To claim depreciation of the year, the depreciable fixed assets must be used during the full year. That is the reason we calculated depreciation till December 31, 2014 (3 Completed years).
To record Depreciation in each case above mentioned...following entry is to be passed:
Accumulated Depreciation A/c Dr. $38,250
To Equipment A/c $38,250
Cost of Equipment (Purchase January 1, 2012)
$72,750
Useful Life
5 Years
Salvage Value at the end of useful life
$9,000
Annual Depreciation as per straight line basis
(Cost of Asset - Salvage Value)/Useful life
$12,750
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