Kudlow Inc. purchased a truck on January 1, 2011, for $80,o00. The truck had an

Question

Kudlow Inc. purchased a truck on January 1, 2011, for $80,o00. The truck had an estimated life of six years and an estimated salvage value of $8,o00. Kudlow uses the straight-ine method to depreciate the asset. On July 1, 2013, the truck was sold for $37,500 cash A) Prepare the journal entry to record the depreciation on the truck for 2012. Dec. 31 B) Show how the gain or loss on the sale of the asset would be reported on Kudlow Inc.'s income statement. Other income and expenses: Select | on disposal of plant assets

Explanation / Answer

A)

Depreciation per year under straight line method

= (Purchase cost – Salvage value) / Useful life

= ($80,000 - $8,000) / 6

= $ 12,000 per year

So, Depreciation entry for 2012 will be

Depreciation       $12,000

       Accumulated Depreciation       $12,000

B)

Accumulated Depreciation till date of sale

= Depreciation for 2011 + Depreciation for 2012 + Depreciation for half year till date of Sale for 2013

= $12,000 + $12,000 + $12,000 x 6 / 12

= $ 30,000

So, Book value on date of Sale

= Purchase cost – Accumulated depreciation

= $80,000 - $30,000

= $ 50,000

So, Loss on sale of truck

= Book value – Sale price

= $50,000 - $37,500

= $ 12,500

Presentation in financial statements

Other income and expenses:

Loss on disposal of plant assets $12,500

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