Question

х Instructions Equipment acquired on January 8 at a cost of $142,430 has an estimated useful life of 16 years, has an estimated residual value of $7,550, and is depreciated by the straight-line method a. What was the book value of the equipment at December 31 the end of the fifth year? b. Assuming that the equipment was sold on April 1 of the sixth year for $93,142, journalize the entries to record (1) depreciation for the three months until the sale date, and (2) the sale of the equipment. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

WORKING NOTES: 1
	CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD
	Purchase Cost of Equipment	$               1,42,430
	Less: Salvage Value	$                     7,550
	Net Value for Depreciation	$               1,34,880
	Usefule life of the Assets	16 years
	Depreciation per year = Value for Depreciation / 16 years =	$                     8,430
	Total Depreciation Per year =	$                     8,430
WORKING NOTES: 2
	CALCULATION OF BOOK VALUE AS ON 01ST APRIL OF 6TH YEAR AND GAIN OR LOSS ON SALE
	Purchase price of Equipment	$               1,42,430
	Less: Depreciation for 5 years	$                  42,150
	Less: Depreciation for 3 months ($ 8,430 *3 /12 month)	$                     2,108
	Book Value	$                  98,172
	Less : Sales Price	$                  93,142
	Loss on Sold	$                     5,030
SOLUTION : A	CALCULATION OF BOOK VALUE OF EQUIPMENT AT THE END OF 5TH YEAR
	Purchase cost of Equipment	$               1,42,430
	Less: Depreciation for 5 years = $ 8,430 X 5 years =	$                  42,150
	Book Value =	$               1,00,280
SOLUTION : B
Journal Entries
Date	Account Title and explanation	Debit	Credit
	Record the depreciation as on April, 01
Apr, 01	Depreciation	$               2,108.00
	Accumulated Depreciation		$                       2,108
	Record the sale transaction as on April, 01
Apr, 01	Cash	$                  93,142
	Accumulated Deprecaition - Equipment	$                  44,258
	Loss on sale of Equipment	$                     5,030
	Equipment		$                 1,42,430