Warmers Inc. purchased a computer on January 1, 2009 at a cost of expected to ha

Question

Warmers Inc. purchased a computer on January 1, 2009 at a cost of expected to have a useful life of 5 years and a salvage value of $500. Warmers uses the straight-line method of depreciation and prepares financial statements once a year on 12/31. (Assume all entries have been made through 12/31/11-) Please show calculations! Prepare all necessary journal entries (including partial year depreciation) to record the disposal of the computer under the following two independent situations. Warmers sold the computer on June 30, 2012 for $800 Record partial-year depreciation: Book Value June 30, 2012 = Gain/Loss on sale =

Explanation / Answer

A Depriciation = (5000-500)/5 SLM of Depriciation = 900 Accumulated Depriciation upto 12/31/2011 = (900x3) = 2700 Partial year depriciation on June 30 2012 = (900/2) = 450 Book Value on June 30 2012 = (5000-2700-450) = $1,850 Loss on sale = (1850-800) = $1,050 Cash 800 Loss on sale 1050 Accumulated Depriciation 3150           Computer 5000 B Partial year depriciation on June 30 2012 = (900/2) = 450 Book Value on June 30 2012 = (5000-2700-450) = $1,850 Profit on sale = (2200-1850) = $350 Cash 2200 Accumulated Depriciation 3150           Computer 5000           Profit on sale 350

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