Equipment acquired on January 8, 2011, at a cost of $420,000, has an estimated useful life of 15 years, has an estimated residual value of $30,000

Equipment acquired on January 8, 2011, at a cost of $420,000, has an estimated useful life of 15 years, has an estimated residual value of $30,000, and is depreciated by the straight-line method.

a. What was the book value of the equipment at December 31, 2014, the end of the year?
b. Assuming that the equipment was sold on October 1, 2015, for $275,000, journalize the entries to record (1) depreciation for the nine months until the sale date, and (2) the sale of the equipment.


Answer:
















a. Cost of equipment……………………………………………………………………………… $420,000
Accumulated depreciation at December 31, 2014
(4 years at $26,000* per year)……………………………………………………………… 104,000
Book value at December 31, 2014…………………………………………………………… $316,000
* ($420,000 – $30,000) ÷ 15 = $26,000
b.
 (1) Depreciation Expense—Equipment 19,500
Accumulated Depreciation—Equipment 19,500
Equipment depreciation ($26,000 × 9/12 = $19,500).
(2) Cash 275,000
Accumulated Depreciation—Equipment* 123,500
Loss on Sale of Equipment 21,500
Equipment 420,000
* $104,000 + $19,500 = $123,500



Equipment acquired on January 6, 2011, at a cost of $714,000, has an estimated useful life of 12 years and an estimated residual value of $44,400.

a. What was the annual amount of depreciation for the years 2011, 2012, and 2013, using the straight-line method of depreciation?
b. What was the book value of the equipment on January 1, 2014?
c. Assuming that the equipment was sold on January 3, 2014, for $525,000, journalize the entry to record the sale.
d. Assuming that the equipment had been sold on January 3, 2014, for $560,000 instead of $525,000, journalize the entry to record the sale.


Answer:
















a. 2011 depreciation expense: $55,800 [($714,000 – $44,400) ÷ 12]
2012 depreciation expense: $55,800
2013 depreciation expense: $55,800
b. $546,600 [$714,000 – ($55,800 × 3)]
c.
 Cash 525,000
Accumulated Depreciation—Equipment 167,400
Loss on Sale of Equipment 21,600
Equipment 714,000
d.
 Cash 560,000
Accumulated Depreciation—Equipment 167,400
Equipment 714,000
Gain on Sale of Equipment 13,400