Question

Equipment acquired on January 6 at a cost of $231,800, has an estimated useful life of 8 years and an estimated residual value of $30,200. a. What was the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation? Year Depreciation Expense Year 1 $ Year 2 $ Year 3 $ b. What was the book value of the equipment on January 1 of Year 4? $ c. Assuming that the equipment was sold on January 3 of Year 4 for $148,400, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank. d. Assuming that the equipment had been sold on January 3 of Year 4 for $159,300 instead of $148,400, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank. Check My Work

Answer 1

Prepare a depreciation schedule as shown in the attached picture;

The asset put in service on 6th Jan. So we can consider depreciation for the full month since we consider the full month option of straight line depreciation method.

Formula to calculate straight line depreciation amount is =(Asset Value - Residual Value) / Life of Asset.

Once the depreciation schedue is cretated, you can easly answer all you querries.

Gain / Loss of Fixed asset sale mount in the journel entries is calculated from the diffrence between sale amount and the value of asset at the begining of Year 4 from the depreciation schedule. And the account is debited in question 'C' is becuse its a loss. it is credited in question 'D' is becuse of gain from sale.