Sale of Equipment Equipment was acquired at the beginning of the year at a cost

Question

Sale of Equipment

Equipment was acquired at the beginning of the year at a cost of $38,500. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of ten years and an estimated residual value of $750.

a. What was the depreciation for the first year?
$

b. Assuming the equipment was sold at the end of year 2 for $9,480, determine the gain or loss on the sale of the equipment.
$ Loss

Feedback

Book value is the asset cost minus accumulated depreciation. In the first year, the balance in the accumulated depreciation account is zero.

Compare the book value to the sale price. If the book value is more than the sale price, the equipment was sold for a loss. If the book value is less than the sale price, the equipment was sold for a gain.

Learning Objective 3.

c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

Feedback

Be sure to record the selling price of the fixed asset. If the company no longer has the fixed asset what account(s) would need to be eliminated? Was there a gain or a loss on the sale?

Explanation / Answer

a Depreciation for the first year = 38500*20%= 7700 b Depreciation for the second year =(38500-7700)*20%= 6160 Book value at the end of year 2 = 38500-7700-6160= 24640 Loss on sale = 24640-9480= 15160 c Cash 9480 Accumulated Depreciation-Equipment   13860 Loss on Sale of Equipment   15160          Equipment   38500

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