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.

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