4. Property Journal Entries. Ames Corp. purchased equipment for cash of $55,000
ID: 2374905 • Letter: 4
Question
4. Property Journal Entries. Ames Corp. purchased equipment for cash of $55,000 and placed it in service at the beginning of the year. The equipment has a residual value of $7,000 and a useful life of 3 years. Straight-line depreciation is used. At the end of the second year, Ames sold the equipment for cash of $20,000. Journalize the following:
a. Purchase of equipment.
b. Depreciation for Year 1
c. Depreciation for Year 2
d. Sale of equipment.
5. Depreciation for Partial Year. Assume the same as problem 4 above, except that the machine was placed into service on October 1 of Year one.
a. Purchase of equipment.
b. Depreciation for Year 1
c. Depreciation for Year 2
d. Sale of equipment.
Explanation / Answer
4. Property Journal Entries. Ames Corp. purchased equipment for cash of $55,000 and placed it in service at the beginning of the year. The equipment has a residual value of $7,000 and a useful life of 3 years. Straight-line depreciation is used. At the end of the second year, Ames sold the equipment for cash of $20,000. Journalize the following:
Straight line depreciation = (55,000 – 7,000)/3 = 16,000 per year
a. Purchase of equipment.
Debit: Equipment 55,000
Credit: Cash 55,000
b. Depreciation for Year 1
Debit: Depreciation expense 16,000
Credit: Accumulated depreciation 16,000
c. Depreciation for Year 2
Debit: Depreciation expense 16,000
Credit: Accumulated depreciation 16,000
d. Sale of equipment.
Debit: Cash 20,000
Debit: Accumulated Depreciation 32,000
Debit: Loss on Sale of Equipment 3,000**
Credit: Equipment 55,000
**The loss on sale is a plugged figure. You have debits of 52,000 and Credits of 55,000, so you need a debit of 3,000, which is a loss.
5. Depreciation for Partial Year. Assume the same as problem 4 above, except that the machine was placed into service on October 1 of Year one.
a. Purchase of equipment.
Debit: Equipment 55,000
Credit: Cash 55,000
b. Depreciation for Year 1
Debit: Depreciation Expense 4,000**
Credit: Accumulated Depreciation 4,000
**16,000*3 months/12 months = 4,000
c. Depreciation for Year 2
Debit: Depreciation expense 16,000
Credit: Accumulated Depreciation 16,000
d. Sale of equipment.
Debit: Cash 20,000
Debit: Accumulated Depreciation 20,000
Debit: Loss of sale of equipment 15,000
Credit: Equipment 55,000
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