Question

Disposal of fixed asset

Instructions

Chart of Accounts

First Questions

Journal

X

Instructions

Equipment acquired on January 6 at a cost of $417,390, has an estimated useful life of 17 years and an estimated residual value of $68,805.

A.	What was the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation?
B.	What was the book value of the equipment on January 1 of Year 4?
C.	Assuming that the equipment was sold on January 3 of Year 4 for $339,855, journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles.
D.	Assuming that the equipment had been sold on January 3 of Year 4 for $368,885 instead of $339,855, journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles.

CHART OF ACCOUNTS
General Ledger
ASSETS 110 Cash 111 Petty Cash 112 Accounts Receivable 114 Interest Receivable 115 Notes Receivable 116 Merchandise Inventory 117 Supplies 119 Prepaid Insurance 120 Land 123 Delivery Truck 124 Accumulated Depreciation-Delivery Truck 125 Equipment 126 Accumulated Depreciation-Equipment 130 Mineral Rights 131 Accumulated Depletion 132 Goodwill 133 Patents LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary	REVENUE 410 Sales 610 Interest Revenue 620 Gain on Sale of Delivery Truck 621 Gain on Sale of Equipment EXPENSES 510 Cost of Merchandise Sold 520 Salaries Expense 521 Advertising Expense 522 Depreciation Expense-Delivery Truck 523 Delivery Expense 524 Repairs and Maintenance Expense 529 Selling Expenses 531 Rent Expense 532 Depreciation Expense-Equipment 533 Depletion Expense 534 Amortization Expense-Patents 535 Insurance Expense 536 Supplies Expense 539 Miscellaneous Expense 710 Interest Expense 720 Loss on Sale of Delivery Truck 721 Loss on Sale of Equipment

A. What was the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation?

Year 1 depreciation expense
Year 2 depreciation expense
Year 3 depreciation expense

B. What was the book value of the equipment on January 1 of Year 4?

C. Assuming that the equipment was sold on January 3 of Year 4 for $339,855, journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 1

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4

D. Assuming that the equipment had been sold on January 3 of Year 4 for $368,885 instead of $339,855, journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 1

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4

Answer 1

Answer:-

A. Depreciation per year = (Total cost - Residual value) ÷ Useful life = (417,390-68,805)÷17 = $20,505

2013 Depreciation expense	$20,505
2014 Depreciation expense	$20,505
2015 Depreciation expense	$20,505

B. Total depreciation for three years = 20,505×3 = $61,515

Book value of the equipment on January 1, 2016 = Total cost - Total depreciation for three years = 417,390-61,515 = $355,875

C.

Journal

Date	Description	Post. Ref.	Debit	Credit
Jan. 3	Cash		339,855
	Loss on equipment disposal (bal. fig.)		16,020
	Equipment (book value)			355,875
	(To record sale of equipment at $339,855, which is lower than its book value, incurring a loss.)

D.

Journal

Date	Description	Post. Ref.	Debit	Credit
Jan. 3	Cash		368,885
	Gain on equipment disposal (bal. fig.)			13,010
	Equipment (book value)			355,875
	(To record sale of equipment at $368,885, which is higher than its book value, incurring a gain.)

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