Question

Pharoah Company sells equipment on March 31, 2021, for $33,740 cash. The equipment was purchased on January 5, 2018, at a cost of $82,500, and had an estimated useful life of five years and a residual value of $2,600. Pharoah Company uses straight-line depreciation for equipment. Adjusting journal entries are made annually at the company’s year end, December 31.

1. Prepare the journal entry to update depreciation to March 31, 2021.

2. Prepare the journal entry to record the sale of the equipment

3. Prepare the journal entry to record the sale of the equipment if Pharoah Company received $26,665 cash for it

Answer 1

Journal entry

No	Date	Account and explanation	Debit	Credit
1	Mar 31	Depreciation expense (82500-2600/5)*3/12	3995
		Accumulated depreciation-equipment		3995
2	Mar 31	Cash	33740
		Accumulated depreciation-equipment (15980*3)+3995	51935
		Gain on sale of equipment		3175
		Equipment		82500
3	Mar 31	Cash	26665
		Accumulated depreciation-equipment	51935
		Loss on sale of equipment	3900
		Equipment		82500