Bella\'s Pizza Company purchased a delivery van in early 20X1 for $55,000 and de

Question

Bella's Pizza Company purchased a delivery van in early 20X1 for $55,000 and depreciated it on a straight-line basis over its useful life of 5 years. Estimated residual value was $5,000. The company sold the van in early 20X4 after recognizing 3 years of depreciation 1. Suppose Bella's Pizza received $27,000 cash for the van. Compute the gain or loss on the sale. Prepare the journal entry for the sale of the van. 2. Suppose Bella's Pizza received $14,000 cash for the van. Compute the gain or loss on the sale. Prepare the journal entry for the sale of the van.

Explanation / Answer

1) Straight line dep = (55000-5000/5) = 10000 per year

Accumlated depreciation = 10000*3 = 30000

Book value at the end of 3 year = 55000-30000 = 25000

Sale value = 27000

Gain on sale of delivery van = 27000-25000 = 2000

2) Straight line dep = (55000-5000/5) = 10000 per year

Accumlated depreciation = 10000*3 = 30000

Book value at the end of 3 year = 55000-30000 = 25000

Sale value = 14000

Gain on sale of delivery van = 14000-25000 = (11000)

Date accounts & explanation debit credit Cash 27000 Accumlated depreciation 30000     Delivery van 55000      Gain on sale of delivery van 2000

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