PE 10-6B Sale of equipment

Equipment was acquired at the beginning of the year at a cost of $450,000. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of 10 years and an estimated residual value of $60,000. a. What was the depreciation for the first year? b. Assuming the equipment was sold at the end of the second year for $319,500, determine the gain or loss on the sale of the equipment. c. Journalize the entry to record the sale.

Answer:
a.  $90,000 = $450,000 × [(1/10) × 2)] = $450,000 × 20%
b. $31,500 gain, computed as follows:
Cost .................................................... $450,000
Less:  First-year depreciation........... (90,000)  
           Second-year depreciation......  (72,000) [($450,000 – $90,000) × 20%]
Book value at end of second year.... $288,000  
Gain on sale ($319,500 – $288,000) = $31,500

c.  Cash................................................................................ 319,500
     Accumulated Depreciation—Equipment ..................... 162,000                
                  Equipment.................................................................  450,000  
                  Gain on Sale of Equipment......................................  31,500 

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