E9-9 Presented below are selected transactions at Ingles Company for 2011. Jan.
ID: 2387511 • Letter: E
Question
E9-9 Presented below are selected transactions at Ingles Company for 2011.Jan. 1 Retired a piece of machinery that was purchased on January 1, 2001.The machine cost
$62,000 on that date. It had a useful life of 10 years with no salvage value.
June 30 Sold a computer that was purchased on January 1, 2008.The computer cost $40,000. It
had a useful life of 5 years with no salvage value.The computer was sold for $14,000.
Dec. 31 Discarded a delivery truck that was purchased on January 1, 2007. The truck cost
$39,000. It was depreciated based on a 6-year useful life with a $3,000 salvage value.
Instructions
Journalize all entries required on the above dates, including entries to update depreciation,
where applicable, on assets disposed of. Ingles Company uses straight-line depreciation. (Assume
depreciation is up to date as of December 31, 2010.)
Explanation / Answer
Jan. 1 Retired a piece of machinery that was purchased on January 1, 2001. The machine cost $62,000 on that date. It had a useful life of 10 years with no salvage value. Depreciation each year = $62,000/10 = $6,200 So by Dec 31, 2007, the machinery would be fully depreciated. Dr Accumulated depreciation $62,000 Cr Machinery $62,000 June 30 Sold a computer that was purchased on January 1, 2008. The computer cost $40,000. It had a useful life of 5 years with no salvage value. The computer was sold for $14,000. Depreciation each year = $40,000/5 = $8,000 It would have been depreciated for 3 years, i.e. 2005, 2006, 2007, a total of $24,000. You need to update depreciation of 6 mths to June 30, 2011 Dr Depreciation expense $4,000 Cr Accumulated depr $4,000 This will bring accum depr to $28,000, and the net book value is $40,000 - $28,000 = $12,000. You sold it for $14,000, so you made a profit of $2,000 Dr Accum depr $28,000 Dr Cash $14,000 Cr Computer $40,000Cr Gain on sale of computer $2,000 Dec. 31 Discarded a delivery truck that was purchased on January 1, 2007. The truck cost $39,000. It was depreciated based on a 6-year useful life with a $3,000 salvage value. Depreciation each year = ($39,000 - $3,000)/6 = $6,000 It would have been depreciated for 4 years, i.e. 2007, 2008, 2009, 2010, total of $24,000. You need to update depreciation of 1 year, to Dec 31, 2011 Dr Depreciation expense $6,000 Cr Accum depr $6,000 This will bring accum depr to $30,000, and the net book value is $39,000 - $30,000 = $9,000. This is what you lost when you discarded it. Dr Accum depr $30,000 Dr Loss on discarding of truck $9,000 Cr Truck $39,000
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