Question

On July 1, 2013, Farm Fresh Industries purchased a speclalized delivery truck for $314,000. At the time, Farm Fresh estlmated the truck to have a useful life of elght years and a residual value of $26,000. On March 1, 2018, the truck was sold for $143,000. Farm Fresh uses the stralght-line depreclation method for all of Its plant and equipment. Partial-year depreclation is calculated based on the number of months the asset is In service Required 1. Prepare the Journal entry to update depreclation In 2018 2. Prepare the Journal entry to record the sale of the truck. 3. Assuming that the truck was sold for $166,000, prepare the journal entry to record the sale Complete this question by entering your answers in the tabs below Req 1 and 2 Req 3 Prepare the journal entries to update depreciation in 2018 and record the sale of the truck. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the depreciation in 2018 Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journal Req 1 and 2 Req 3 Prey 14 of 26! Next>

Answer 1

Answer

Depreciation = (Cost – Salvage Value) / Useful Life

= (314,000 – 26,000) / 8 Years

Depreciation = 36,000 per year

It is been assumed that Company has Jan to Dec. financial year.

S No.	Journal	Debit	Credit
1	Depreciation	6,000
	Accumulated Depreciation		6,000
	(Being depreciation recorded for 2 months i.e. Jan and Feb)
2	Cash	143,000
	Accumulated Depreciation (Note 1)	168,000
	Loss on asset sale (Note 2)	3,000
	Truck		314,000
	(Being asset sold at loss)
3	Cash	166,000
	Accumulated Depreciation	168,000
	Gain on asset sale(Note 3)		20,000
	Truck		334,000
	(Being asset sold at profit)

Note 1

Depreciation on Asset sold = 6 Months depreciation in 2013(July to Dec.) + 4 Years Depreciation from 2014 to 2017 + 2 Months depreciation in 2018(Jan & Feb.)

= (36,000 * 6/12 months) + (36,000 * 4 Years) + (36,000 * 2/12 Months)

Depreciation on Asset sold = 168,000

Note 2

Loss on Sale =Sale amount – (Cost – Accumulated Depreciation)

= 143,000 – (314,000 – 168,000)

Loss = 3,000

Note 3

Gain on Sale =Sale amount – (Cost – Accumulated Depreciation)

= 166,000 – (314,000 – 168,000)

Gain = 20,000