Exercise 10-18 Disposal of Fixed Asset Equipment acquired on January 4, 2009, at

Question

Exercise 10-18

Disposal of Fixed Asset

Equipment acquired on January 4, 2009, at a cost of $425,000, has an estimated useful life of nine years and an estimated residual value of $65,000.

a. What was the annual amount of depreciation for the years 2009, 2010, and 2011, using the straight-line method of depreciation?

b. What was the book value of the equipment on January 1, 2012?
$

c. Assuming that the equipment was sold on January 9, 2012, for $290,000, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank or enter "0".

d. Assuming that the equipment had been sold on January 9, 2012, for $310,000 instead of $290,000, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank or enter "0".

Explanation / Answer

a) SLM Cost of Machine      425,000.00 Salvage Value        65,000.00 Life in years                   9.00 Particulars 2009 2010 2011 Opening Balance      425,000.00         385,000.00                         345,000.00 Depreciation (425,000 - 65,000)/9        40,000.00           40,000.00                           40,000.00 Closing balance      385,000.00         345,000.00                         305,000.00 b) Book value of Equipment on Jan 1 ,2012      305,000.00 Journal Entry Particulars Dr Amt Cr Amt c) Cash Dr      290,000.00 Loss on Sale of Equipment Dr = 425,000 - 120,000 - 290,000        15,000.00 Accumulated Depreciation Dr      120,000.00 To Equipment         425,000.00 d) Cash Dr      310,000.00 Accumulated Depreciation Dr      120,000.00 To Equipment         425,000.00 To Profit on Sale of Equipment = 310,000 + 120,000 - 425,000             5,000.00

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