Question

Exercise 11-10 Disposal of property, plant, and equipment [LO11-2] Mercury Inc. purchased equipment in 2016 at a cost of $315,000. The equipment was expected to produce 570,000 units over the next five years and have a residual value of $30,000. The equipment was sold for $160,500 part way through 2018. Actual production in each year was: 2016 = 81,000 units; 2017 = 129,000 units; 2018 = 65,000 units. Mercury uses units-of-production depreciation, and all depreciation has been recorded through the disposal date. Required: 1. Prepare the journal entry to record the sale. 2. Assuming that the equipment was sold for $197,500, prepare the journal entry to record the sale.

Answer 1

1
	Debit	Credit
Cash	160500
Accumulated depreciation-Equipment	137500
Loss on sale of equipment	17000
Equipment		315000
2
Cash	197500
Accumulated depreciation-Equipment	137500
Gain on sale of equipment		20000
Equipment		315000
Workings:
Depreciation cost per unit	0.50		=(315000-30000)/570000
Total actual production	275000		=81000+129000+65000
Accumulated depreciation-Equipment	137500		=275000*0.5