E8-24. Computing Depreciation, Asset Book Value, and Gain or Loss on Asset Sale
ID: 2518775 • Letter: E
Question
E8-24. Computing Depreciation, Asset Book Value, and Gain or Loss on Asset Sale Sloan Company uses its own executive charter plane that originally cost $800,000. It has recorded straight-line depreciation on the plane for six full years, with an $80,000 expected salvage value at the end of its estimated 10-year useful life. Sloan disposes of the plane at the end of the sixth year. a. At the disposal date, what is the (1) accumulated depreciation and (2) net book value of the plane? Prepare a journal entry to record the disposal of the plane assuming that the sales price is 1. b. 2. 3. Cash equal to the book value of the plane. $195,000 cash. $600,000 cash.Explanation / Answer
a) Annual depreciation under the Straight Line Method = (800000-80000)/10 = $ 72,000 1) Accumulated depreciation at EOY 6 = 72000*6 = $ 4,32,000 2) Net book valueof the plane at EOY 6 = 800000-432000 = $ 3,68,000 b) 1) For cash equal to book value of the plane there would be no gain or loss on disposal. Entry is: Cash $ 3,68,000 Accumulated depreciation-Plane $ 4,32,000 Plane $ 8,00,000 2) As the cash received is less than the book value there would be loss on disposal. The entry would be: Cash $ 1,95,000 Accumulated depreciation-Plane $ 4,32,000 Loss on disposal of plane $ 1,73,000 Plane $ 8,00,000 3) As the cash received is more than the book value there would begain on disposal. The entry would be: Cash $ 6,00,000 Accumulated depreciation-Plane $ 4,32,000 Gain on disposal of plane $ 2,32,000 Plane $ 8,00,000
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