Perfect Auto Rentals sold one of its cars on January 1, 2013. Perfect had acquir

Question

Perfect Auto Rentals sold one of its cars on January 1, 2013. Perfect had acquired the car on January 1, 2011, for $13,500. At acquisition Perfect assumed that the car would have an estimated life of 3 years and a residual value of $3,000. Assume that Perfect has recorded straight-line depreciation expense for 2011 and 2012.

Required:

1. Prepare the journal entry to record the sale of the car assuming the car sold for (a) $6,500 cash, (b) $4,000 cash, and (c) $7,100 cash. The company recorded the car as equipment. If no entry is required, leave the answer boxes blank.

1. Prepare the journal entry to record the sale of the car assuming the car sold for (a) $6,500 cash, (b) $4,000 cash, and (c) $7,100 cash. The company recorded the car as equipment. If no entry is required, leave the answer boxes blank.

Explanation / Answer

Answer:

Depreciation expense per year for car = Cost - Salvage value / Life of Car

= 13,500 - 3,000 / 3 = $3,500

Accumulated Depreciation till January 1, 2013 = 3,500 + 3,500 = $7,000

Case 1 : Sale value = $6,500

Journal Entry on January 1, 2013;

Cash Dr. 6,500

Accumulated Depreciation Dr. 7,000

Equipment Cr. 13,500

Case 2 : Sale value = $4,000

Journal Entry on January 1, 2013;

Cash Dr. 4,000

Accumulated Depreciation Dr. 7,000

Loss on sale of Car Dr. 2,500

Equipment Cr. 13,500

Case 3 : Sale value = $7,100

Journal Entry on January 1, 2013;

Cash Dr. 7,100

Accumulated Depreciation Dr. 7,000

Equipment Cr. 13,500

Gain on sale of Car Cr. 600

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