Problem 9-3A Crane Company had the following assets on January 1, 2017. Useful L

Question

Problem 9-3A Crane Company had the following assets on January 1, 2017. Useful Life ItemCost Purchase Date (in years) Salvage Value Machinery $86,620 Jan. 1, 2007 Forklift 36,600 Jan. 1, 2014 Truck $0 0 3,664 10 40,752 Jan. 1, 2012 8 During 2017, each of the assets was removed from service. The machinery was retired on January 1. The forklift was sold on June 30 for $14,640. The truck was discarded on December 31 Journalize all entries required on the above dates, including entries to update depreciation, where applicable, on disposed assets. The company uses straight-line depreciation. All depreciation was up to date as of December 31, 2016. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts

Explanation / Answer

Journal entries

Date                     Particulars                                                                                        Debit($)             Credit($)

30/06/2017     Depreciation a/c Dr     3660                       -

To Forklit a/c -                       3660

(Being Depreciation on forklift upto date of sale i.e 36600*.05 years/5years)

30/06/2017      Bank a/c Dr     14640                     -

To Forklift a/c -                   10980

To profit and loss a/c(working note1) - 3660

(Being forklift sold at a profit of $3660)

31/12/2017     Depreciation a/c Dr       4636                  -     

To Truck a/c -                   4636

(Being Depreciation on Truck for the year 2017 i.e 40752*1year/8years)

31/12/2017     Bank a/c Dr         3664                     -

Profit and loss a/c(Working note 2) Dr          9272                     -

To Truck a/c -                  12936

(Being Sale of truck at the end of year 2017 for a loss of $ 9272)

Working note 1 : Calculation of Profit on sale of Forklift :

Particulars                                                                               Amount ($)

(a) Cost of Forklift as on January,1,2017                                                                         36600

(b) Depreciation upto 30,june,2017 (36600*3.5 years / 5years) 25620

(c) written down value as on 30/06/2017 (a-b) 10980

(d) sale value of forklift 14640

(e) profit on sle of forklift (d-c) 3660

Working note 2 : Calculation of loss on sale of truck:

                                        Particulars                                                                                Amount($)

(a) cost of truck as on 01/01/2017 40752

(b) salvage value                                                                                                                        3664

(c) Depreciation upto 31/12/2017 (40752-3664)*6years/ 8 years 27816

(d) written down value as on 31/12/2017 (a-c) 12936

(e) sale value of truck ( salvage value) 3664

(f) loss on sale of truck (d-e) 9272

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