A machine having a book value on 1/1/20 of $3,000 was sold on 4/1/20 for $3,300. The original cost of the machine (acquired on 1/1/18) was $5,000. At that time, the estimated life of the machine was five years, with no residual value. The last entry for depreciation (straight-line) was made on 12/31/19. Prepare the two journal entries required on 4/1/20.
Answer :
Date | Account title | Debit | Credit |
April 01, 2020 | Depreciation | $250 | |
Accumulated depreciation ($5,000 ÷ 5) × 3/12 |
$250 | ||
April 01, 2020 | Cash | $3,300 | |
Accumulated depreciation | $2,250 | ||
Machine | $5,000 | ||
Gain on sale of machine | $550 | ||
Workings :
1)Depreciation per year = (cost of asset - residual value) ÷ life of asset
= ($5,000 - $0) ÷ 5
= $1,000
2) Accumulated Depreciation on 01/04/2020 :
Depreciation for 2018 + Depreciation for 2019 + Depreciation for 2020 (3 months)
= $1,000 +$1,000 + $250
= $2,250
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