Need within an hour, please! Howarth Manufacturing Company purchased a lathe on

Question

Need within an hour, please!

Howarth Manufacturing Company purchased a lathe on June 30, 2014, at a cost of $115,000. The residual value of the lathe was estimated to be $10,000 at the end of a five-year life. The lathe was sold on March 31, 2018, for $33,000. Howarth uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the asset is in service.

Required:
1. Prepare a schedule to calculate the gain or loss on the sale.
2. Prepare the journal entry to record the sale.
3. Assuming that Howarth had instead used the sum-of-the-years’-digits depreciation method, prepare the journal entry to record the sale.

Explanation / Answer

1) Depreciation under straight-line method = (cost of asset-Salvage value)/Useful life = (115000-10000)/5 = $21000 Accumulated depreciation as on March 31, 2018 = $21000*3.75 (3 years and 9 months) = $78750 Carrying value of asset as on March 31, 2018 = 115000-78750 = $36250 Sale value = $33000 Loss on sale of asset = $36250-$33000 = $3250 2) Date Account Head & Description Debit Amount Credit Amount March 31, 2018 Cash 33000 Depreciation expense (21000*3/12) 5250 Accumulated depreciation (78750-5250) 73500 Loss on sale of asset 3250 Lathe 115000 (to record the sale of asset) 3) Total number of years = 1+2+3+4+5 = 15 Depreciation - 1st year = 5/15*(115000-10000)*6/12 = $17500 Depreciation - 2nd year = 4/15*(115000-10000) = $28000 Depreciation - 3rd year = 3/15*(115000-10000) = Depreciation - 4th year = 2/15*(115000-10000)*3/12 = 6738 Accumulated depreciation as on March 31, 2018 = 17500+28000+21000+3500 = $70000 Carrying value of asset as on March 31, 2018 = 115000-70000 = 45000 Sale value = $33000 Loss on sale of asset = $45000-$33000 = $12000 Date Account Head & Description Debit Amount Credit Amount March 31, 2018 Cash 33000 Depreciation expense 3500 Accumulated depreciation (70000-3500) 66500 Loss on sale of asset 12000 Lathe 115000 (to record the sale of asset)

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