Entries for Sale of Fixed Asset Equipment acquired on January 5, 2011, at a cost

Question

Entries for Sale of Fixed Asset

Equipment acquired on January 5, 2011, at a cost of $800,520, has an estimated useful life of 15 years, has an estimated residual value of $66,120, and is depreciated by the straight-line method.
a. What was the book value of the equipment at December 31, 2014, the end of the year?

b. Assume that the equipment was sold on October 1, 2015, for $522,500.
1. Journalize the entry to record depreciation for the nine months until the sale date.
2. Journalize the entry to record the sale of the equipment. If an amount box does not require an entry, leave it blank. Do not round intermediate calculations.

Explanation / Answer

Depreciation = Cost of asset - Residual value / Estimated life of asset

= 800520 - 66120 / 15

= 734400 / 15

= $ 48960

a. The book value of the equipment at December 31, 2014, the end of the year:-

Equipment aquired in January 2011, therefore, by December 31, 2014, Depreciation would have been charged for almost 4 Years.

So, total amount of Depreciation to be charged by December 31, 2014 = 48960 * 4 = $ 195840

   Accordingly,the book value of the equipment at December 31, 2014, the end of the year

   = 800520 - 195840

   = $ 604680

Conclusion:- The book value of the equipment at December 31, 2014, the end of the year = $ 604680

b.) 1. Journalize the entry to record depreciation for the nine months until the sale date:-

Depreciation A/c Dr.

To Equipment A/c

( Depreciation for one month = 48960 / 12 = 4080

Accordingly, Depreciation for nine months = 4080 * 9

= $ 36720

36720

36720

2. Journalize the entry to record the sale of the equipment:-

Bank A/c Dr.

P & L A/c Dr.

To Equipment A/c

522500

45460 (NOTE 2)

567960 (NOTE 3)

(NOTE 3) :- Book value of equipment as on October1, 2015 = 604680 - 36720 (after charging depreciation for nine months in year 2015 )

= $ 567960

(NOTE 2) :- Loss on sale of asset = 567960 - 522500

= $ 45460

Depreciation A/c Dr.

To Equipment A/c

( Depreciation for one month = 48960 / 12 = 4080

Accordingly, Depreciation for nine months = 4080 * 9

= $ 36720

36720

36720

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