Question

# Suarez Company uses the straight-line method of depreciation. The company purchased a computer system on January...

Suarez Company uses the straight-line method of depreciation. The company purchased a computer system on January 1, Year 1, for \$1,600,000 with an expected life of six years and a salvage value of \$130,000. Assuming the computer is sold on July 1, Year 3 for \$1,000,000 cash, prepare the journal entries to record depreciation for the first 6 months of Year 3 and the sale of the computer.

Can u please put it in a chart so I know how to format the journal entry? Thank you

First let us know the annual straightline depreciation;

(cost - salvage value) / number of years of life

=> (1,600,000-130,000)/ 6 years

=>\$245,000.

now, depreciation till July 1, year 3 = annual depreciation * 2.5 years

=>\$612,500.

book value as on July 1 year 3 = purchase price -accumulated depreciation

\$1,600,000-612,500

=>\$987,500.

so, gain on sale = sale price - book value

=>\$1,000,000-987,500

=>\$12,500.

The following will be the journal entries;

 Date Accounts Debit Credit July 1 year 3 Depreciation expense (245,000 *1/2) 122,500 Accumulated depreciation 122,500 July 1 Cash 1,000,000 Accumulated depreciation (see above for calculation) 612,500 Equipment - computer system 1,600,000 Gain on sale of equipment 12,500