On January 1, 2016, Jefferson Manufacturing Company purchased equipment for $212
ID: 2521771 • Letter: O
Question
On January 1, 2016, Jefferson Manufacturing Company purchased equipment for $212,000. Jefferson paid $4,000 to have the machine installed. The equipment is expected to have a 5 year useful life and a salvage value of $26,000.
Required: a) At what dollar amount should this equipment be recorded in Jefferson's accounting records?
b) Compute depreciation expense for 2016 and 2017 using straight line depreciation.
c) What is the book value at the beginning of 2018?
d) Assume the equipment was sold on January 1, 2018, for $135,000. Compute the amount of gain or loss from the sale.
e) Prepare the journal entry to record the sale of the equipment using the information in part d).
Explanation / Answer
1) Equipment should be recorded at
Cash price + Installations charges
= $ 212000 + 4000
= $ 216000
2) Depreciation per year ( for 2016, 2017)
Cost less salvage value/ Useful life
= $( 216000 - 26000 )/ 5
= $ 38000 per year
3) Books Value at the beginning of 2018
Cost of Equipment = $ 216000
Less DEPRECIATION FOR 2016 = ( $ 38000)
Less DEPRECIATION FOR 2017 = ($ 38000)
Book Value at beginning of 2018 = $ 140000
4) Gain or loss on sale
selling price- book value at that date
$ 135000 - $ 140000
loss of $ 5000
5)
Journal Entry on sale of equipment
Cash. debit. $ 135000
loss on sale of equipment debit $ 5000
Accumlated depreciation. Debit. $ 76000
on Equipment
Equipment. Credit. $ 216000
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