Sale of Equipment Equipment was acquired at the beginning of the year at a cost
ID: 2514869 • Letter: S
Question
Sale of Equipment Equipment was acquired at the beginning of the year at a cost of $41,250. The equlpment was depreclated using the double-dedining-balance method based on an estimate useful life of ten years and an estimated residual value of $800. a. What was the depreciation for the first year? b. Assuming the equipment was sold at the end of year 2 for $9,530, determine the gain or loss on the sele of the equipment. c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.Explanation / Answer
Depreciation rate under double declining balance method
= 1 / Useful life x 2
= 1 / 10 x 2
= 0.20 or 20%
Depreciation under double declining balance method
= Book value at the beginning of the year x Depreciation rate
Depreciation for year 1
= $41,250 x 20%
= $8,250
Written down value of the asset at the beginning of year 2
= Cost – Accumulated depreciation till end of year 1
= $41,250 - $8,250
= $33,000
Depreciation for year 2
= $33,000 x 20%
= $6,600
Written down value of the asset at the end of year 2
= $33,000 - $6,600
= $ 26,400
Since the sale value of the equipment is less than the written down value, there will be a loss on sale
Loss
= Written down value – Sale price
= $ 26,400 - $9,530
= $ 16,870
Journal Entry to record the sale
Cash $9,530
Loss on sale of equipment $16,870
Accumulated Depreciation $14,850
Equipment $41,250
(Being equipment sold at a loss)
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