Equipment was acquired at the beginning of the year at a cost of $575,000. The e
ID: 2560946 • Letter: E
Question
Equipment was acquired at the beginning of the year at a cost of $575,000. The equipment was depreciated using the straight-line method based on an estimated useful life of 9 years and an estimated residual value of $47,440. a. What was the depreciation for the first year? Round your intermediate calculations to 4 decimal places. Round your answer to the nearest cent. $ b. Assuming the equipment was sold at the end of the eighth year for $567,525, determine the gain or loss on the sale of the equipment. Round your answer to the nearest cent. c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank. Round your answers to the nearest cent.
Explanation / Answer
Answer :
Asset Cost =$575,000
Salvage Value= $47,440
Life of the Asset = 9 years
a) Since the asset was purcased in the beginning of the year hence the depreciation will be calculated for the first year for the full year. The depreciation amount will be $58617.78
Calcuation is as follows = (Asset value -Salvage value)/ Life of the asset= ($575,000-$47,440)/9=$58617.7778
b) If the equipment was sold at the end of eight year for $567,525, the gain or loss will be calculated basis the asset book value which is Asset value less the accumulated depreciation for eight years i.e $58617.7778*8=$468,942.2224 so book value at the year end will be $106,057.78 ($575,000-468,942.22). so gain will be $461,467.22 ($567,525-$106,057.78) since the asset was sold more than its book value
c) Journal
Cash/ Bank A/c Dr $567,525
Accumulated depreciation A/c Dr $468,942.22
To Asset A/c Cr $ 575,000
To Gain on Sale of Assets A/c Cr $ 461,467.22
(Cash received of $567,525, Accumulated depreciation of eight year and gain on sale of asset as discussed in point B)
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