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 $36,500. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of ten years and an estimated residual value of $710. a. What was the depreciation for the first year? ?8000) b. Assuming the equipment was sold at the end of year 2 for $8,440, determine the gain or loss on the sale of the equipment. 23,360X Loss Feedlhack c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank. Cash 8,440 Accumulated Depreciation-Equipment V Mia" 14,600 X Loss on Sale of Equipment 13,460 | X Equipment 36,500

Explanation / Answer

a.  Rate of depreciation using straight line method =(1/ Useful life) = (1/10)= 20%

Depreciation under double declining balance method = 20% x 200% = 40%

Depreciation for the first year = 36500 x 40% = $14600

b. The asset is sold at the end of the second year that means the depreciation for the second year would have been charged on it.

Depreciation in second year = ($36500-$14600) x 40% = $8760

Book value of equipment at the end of second year = $36500 - $14600 - $8760 = $13140

Gain / Loss on sale of equipment = Sale price - Book value

   = $8440 - $13140

= $4700 Loss

c. Journal entry for sale

Particulars

Debit

Credit

Cash

8440

Accumulated Depreaciation- Equipment

23360

Loss on Sale of Equipment

4700

Equipment

36500

Particulars

Debit

Credit

Cash

8440

Accumulated Depreaciation- Equipment

23360

Loss on Sale of Equipment

4700

Equipment

36500

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