Question

Howarth Manufacturing Company purchased equipment on June 30, 2017, at a cost of $82,000. The residual value of the equipment was estimated to be $7,000 at the end of a five-year life. The equipment was sold on March 31, 2021, for $15,000. Howarth 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 record the sale.
2. Assuming that Howarth had instead used the double-declining-balance method, prepare the journal entry to record the sale.

Answer 1

1. Total depreciation = [(82000-7000)/ 60 months]*45 months = $56250

Date	Account Titles and Explanation	Debit	Credit
March 31, 2021	Cash	$15,000
	Accumulated Depreciation - Equipment	$56,250
	Loss on sale	$10,750
	Equipment		$82,000

2. Double-declining-balance depreciation rate = 5 years = 20% x 2 = 40%

Depreciation for 2017 = 82000*40%*6/12 = 16400

Depreciation for 2018 = (82000-16400)*40% = 26240

Depreciation for 2019 = 39360*40% = $15744

Depreciation for 2020 = 23616*40% = 9446

Depreciation for 2021 = 14170*40%*3/12 = 5668

Total depreciation = $73498

Date	Account Titles and Explanation	Debit	Credit
March 31, 2021	Cash	$15,000
	Accumulated Depreciation - Equipment	$73,498
	Gain on sale		$6,498
	Equipment		$82,000