Question

On July 1, 2013, Farm Fresh Industries purchased a specialized delivery truck for $328,000. At the...

On July 1, 2013, Farm Fresh Industries purchased a specialized delivery truck for $328,000. At the time, Farm Fresh estimated the truck to have a useful life of eight years and a residual value of $40,000. On March 1, 2018, the truck was sold for $156,000. Farm Fresh 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 the journal entry to update depreciation in 2018. 2. Prepare the journal entry to record the sale of the truck. 3. Assuming that the truck was sold for $167,000, prepare the journal entry to record the sale.

Homework Answers

Answer #1

Depreciation = (cost - residual value)/ useful life = (328000-40000)/8 = 36000 per year

Per month depreciation = 36000/12 = 3000

in 2018 for two months depreciation = 3000 * 2 = 6000

1

Account Debit Credit
Depreciation expense 6000
Accumulated depreciation 6000

2

a total of 56 months depreciation is recorded on truck, which comes to 56* 3000 = 168,000 accumulated depreciation.

Net book value of truck = 328000-168000 = 160000

Gain/(loss) on sale of truck = 156000 - 160000 = (4000)

Entry

Account Debit Credit
Cash 156000
Accumulated depreciation 168000
Truck 328000
Loss on sale of truck 4000

3

Journal

Account Debit Credit
Cash 167000
Accumulated depreciation 168000
Truck 328000
Gain on sale of truck 7000
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