Question

Equipment acquired on January 8 at a cost of $142,430 has an estimated useful life of 16 years, has an estimated residual value of $7,550, and is depreciated by the straight-line method.

a.	What was the book value of the equipment at December 31 the end of the fifth year?
b.	Assuming that the equipment was sold on April 1 of the sixth year for $93,142, journalize the entries to record (1) depreciation for the three months until the sale date, and (2) the sale of the equipment. Refer to the Chart of Accounts for exact wording of account titles.

CHART OF ACCOUNTS

General Ledger

	ASSETS
110	Cash
111	Petty Cash
112	Accounts Receivable
114	Interest Receivable
115	Notes Receivable
116	Merchandise Inventory
117	Supplies
119	Prepaid Insurance
120	Land
123	Delivery Truck
124	Accumulated Depreciation-Delivery Truck
125	Equipment
126	Accumulated Depreciation-Equipment
130	Mineral Rights
131	Accumulated Depletion
132	Goodwill
133	Patents

	LIABILITIES
210	Accounts Payable
211	Salaries Payable
213	Sales Tax Payable
214	Interest Payable
215	Notes Payable

	EQUITY
310	Common Stock
311	Retained Earnings
312	Dividends

	REVENUE
410	Sales
610	Interest Revenue
620	Gain on Sale of Delivery Truck
621	Gain on Sale of Equipment

	EXPENSES
510	Cost of Merchandise Sold
520	Salaries Expense
521	Advertising Expense
522	Depreciation Expense-Delivery Truck
523	Delivery Expense
524	Repairs and Maintenance Expense
529	Selling Expenses
531	Rent Expense
532	Depreciation Expense-Equipment
533	Depletion Expense
534	Amortization Expense-Patents
535	Insurance Expense
536	Supplies Expense
539	Miscellaneous Expense
710	Interest Expense
720	Loss on Sale of Delivery Truck
721	Loss on Sale of Equipment

a. What was the book value of the equipment at December 31 the end of the fifth year?

b. Assuming that the equipment was sold on April 1 of the sixth year for $93,142, journalize the entries to record the following (refer to the Chart of Accounts for exact wording of account titles):

1. Depreciation for the three months until the sale date.

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2

2. The sale of the equipment. Round your final answers to the nearest whole dollar.

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4

Answer 1

a) Straight line Depreciation = (142430-7550/16) = 8430 per year

Accumulated depreciation at the end of fifth year = 8430*5 = 42150

Book value at the end of 5th year = 142430-42150 = 100280

b) Journal entries

1. Depreciation for the three months until the sale date.

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Apr 1	Depreciation expense (8430*3/12)		2108				-2108
2		Accumulated depreciation-equipment			2108	-2108

2. The sale of the equipment. Round your final answers to the nearest whole dollar.

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Apr 1	Cash		93142		93142
2		Accumulated depreciation-equipment		44258		-44258
3		Loss on sale of equipment		5030				-5030
4		Equipment			142430	-142430