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
now, depreciation till July 1, year 3 = annual depreciation * 2.5 years
book value as on July 1 year 3 = purchase price -accumulated depreciation
so, gain on sale = sale price - book value
The following will be the journal entries;
|July 1 year 3||Depreciation expense (245,000 *1/2)||122,500|
|Accumulated depreciation (see above for calculation)||612,500|
|Equipment - computer system||1,600,000|
|Gain on sale of equipment||12,500|
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