Sale of Equipment Equipment was acquired at the beginning of the year at a cost

Question

Sale of Equipment Equipment was acquired at the beginning of the year at a cost of $37,250. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of ten years and an estimate residual value of $720. a. What was the depreciation for the first year? 7,306X b. Assuming the equipment was sold at the end of year 2 for $8,610, determine the gain or loss on the sale of the equipment. 14,028 X Loss Foedbock c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank. Cash Accumulated Depreciation-Equipment14612x Loss on Sale of Equipment 8,610 14028x Equipment Y 37,250V Feedbeck Check My Work Be sure to record the selling price of the fixed asset. If the company no longer has the fixed asset what account(s) would need to be eliminated? Was there a gain or a loss on the sale? Learning Objective 3. Foedback ? Check My Work Partially correct

Explanation / Answer

Double declining method –

Depreciation = cost x 2 x straight line depreciation rate

Straight line depreciation rate = 1/useful life

Useful life = 10 years

Straight line depreciation rate = 1/10 = 10%

Cost = $37,250

Depreciation for first year = 37,250 x 2 x 10% = $7,450

Hence, depreciation for the first year = $7,450

Gain or loss = sale proceeds – book value of equipment sold

Book value = cost – accumulated depreciation

Accumulated depreciation = depreciation of first year + depreciation of second year

Depreciation for first year = $7,450

Depreciation for second year = (cost – accumulated depreciation) x 2 x 10%

= (37,250 – 7,450) x 2 x 10%

= $5,960

Hence, depreciation for second year = $5,960

Book value at the end of second year = 37,250 – (7,450 + 5,960) = $23,840

Sale proceeds = $8,610

Loss on sale of equipment = 8,610 – 23,840 = ($15,230)

Hence, sale of equipment at the end of second year resulted in a loss of $15,230.

Date

Account Titles and Explanation

Ref. No.

Debit

Credit

Cash

$8,610

Accumulated Depreciation - Equipment

$13,410

Loss on Sale of Equipment

$15,230

Equipment

$37,250

(To record sale of equipment and the loss on sale)

Date

Account Titles and Explanation

Ref. No.

Debit

Credit

Cash

$8,610

Accumulated Depreciation - Equipment

$13,410

Loss on Sale of Equipment

$15,230

Equipment

$37,250

(To record sale of equipment and the loss on sale)

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