Question

Abbott Landscaping purchased a tractor at a cost of $42,000 and disposed of it three entire years later. Abbott recorded depreciation using the straight-line method, a five-year service life, and a $3,000 residual value. Tractors are included in the Equipment account.

Required:

1. Calculate the annual depreciation amount and accumulated depreciation by the end of year three (0.5 point).

Annual Depreciation = _________________________________

Accumulated Depreciation = _________________________________

2. Assume the tractor is retired by the end of year three. Record the retirement (1.5 points).

	Debit	Credit

3. Assume the tractor was sold for $21,600 by the end of year three. Record the sale (1.5 points).

	Debit	Credit

4. Assume the tractor was sold for $13,600 by the end of year three. Record the sale (1.5 points).

	Debit	Credit

Answer 1

a) Annual Depreciation = (42000-3000/5) = 7800 per year

Accumulated depreciation = 7800*3 = 23400

2) Journal entry

General Journal	Debit	Credit
Accumulated depreciation-Tractor	23400
Loss on retirement of tractor	18600
Tractor		42000

3) Journal entry

General Journal	Debit	Credit
Cash	21600
Accumulated depreciation-Tractor	23400
Gain on sale of tractor		3000
Tractor		42000

4) Journal entry

General Journal	Debit	Credit
Cash	13600
Accumulated depreciation-Tractor	23400
Loss on sale of tractor	5000
Tractor		42000