Equipment was acquired at the beginning of the year at a cost of I $465,000. The
ID: 2481814 • Letter: E
Question
Equipment was acquired at the beginning of the year at a cost of I $465,000. The equipment was depreciated using the straight-line method based on an estimated useful life of 15 years and an estimated residual value of $45,000. What was the depreciation for the first year? Assuming the equipment was sold at the end of the eighth year for $235,000, determine the gam or loss on the sale of the equipment. Journalize the entry to record the sale, defer to the Cnarz of Accounts for exact wording cf account titfes.Explanation / Answer
(a) Depreciation = (Cost - Salvage value) / Useful life = $(465,000 - 45,000) / 15 = $420,000 / 15 = $28,000
(b) Accumulated depreciation upto year 8 = $28,000 x 8 = $224,000
Book value = Cost - Accumulated depreciation = $(465,000 - 224,000) = $241,000
Loss on sale of equipment = Book value - Sale value = $(241,000 - 235,000) = $6,000
(c) Journal entry:
DR Cash $235,000
DR Loss on sale of equipment $6,000
Equipment $241,000
(To record sale of equipment at a loss)
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