Question

Equipment was acquired at the beginning of the year at a cost of $79,500. The equipment was depreciated using the straight-line method based upon an estimated useful life of 6 years and an estimated residual value of $7,500.

a. What was the depreciation expense for the first year?
$

b. Assuming the equipment was sold at the end of the second year for $59,900, determine the gain or loss on sale of the equipment.
$  

c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank or enter "0".

Answer 1

Solution a:

Cost of equipment = $79,500

Residual value = $7,500

Depreciable cost = Cost - Residual value = $79,500 - $7,500 = $72,000

Useful life = 6 years

Annual depreciation - SLM = Depreciable cost / Life = $72,000 / 6 = $12,000

Therefore depreciation expense for first year = $12,000

Solution b:

Sale of value of equiment = $59,900

Accumulated depreciation at the end of 2nd year = $12000 * 2 = $24,000

Book value of equipment at the end of 2nd year = $79,500 - $24,000 = $55,500

Gain (Loss) on sale of equipment = Sale value - Book value = $59,900 - $55,500 = $4,400

Solution c:

Journal Entries
Particulars	Debit	Credit
Cash Dr	$59,900.00
Accumulated depreciation - Equipment Dr	$24,000.00
To Equipment		$79,500.00
To Gain on sale of Equipment		$4,400.00
(Being equipment sold and gain recoganized