On December 31, 2016, York Corp. sold a boiler. The following information was av
ID: 2588949 • Letter: O
Question
On December 31, 2016, York Corp. sold a boiler. The following information was available on that date Purchase price paid for boiler Date originally purchased Life 7 years. Original salvage value established Installation cost paid at time of purchase in cash Straight-line depreciation is used. $220,000 12/31/2011 $10,000 30,000 The old boiler was sold for $40,000 cash. Provide a JE for the sale. What if the boiler was traded for another boiler (had commercial substance) that had a FMV of $40,000 a. What if old boiler was sold for cash and sum-of-the years' digits were used to calculate depreciation? b.Explanation / Answer
Calculation of Book Value:
Purchase price of boiler $ 220000
Installation cost $ 30000
Cost of Boiler $ 250000
Salvage value $ 10000
Life of asset 7 years
Depreciation ($ 250000 - $ 10000) / 7*5
= $ 171429
Book Value as on 31.12.16 = $ 250000 - $ 171429 = $ 78571
Boiler sold for = $ 40000
Loss on sale of Boiler = $ 78571 - $ 40000 = $ 38571
Journal entries
1. Cash a/c Dr $ 40000
Loss on sale Dr $ 38571
To Boiler $ 78571
( Being entry for sale of Boiler )
a.
New Boiler a/c Dr $ 40000
Loss on sale Dr $ 38571
To Old Boiler $ 78571
( Being entry for Old Boiler traded for New Boiler )
b. Sum of years digits method Depreciation:
Sum of each year of estimated useful life = 1+2+3+4+5+6+7 = 28
Year Remaining useful life at the beginning of the year SYD % Depreciation on $ 240000
1 7 7/28 25 $ 60000
2 6 6/28 21.43 $ 51430
3 5 5/28 17.86 $ 42860
4 4 4/28 14.29 $ 34300
5 3 3/28 10.71 $ 25700
Total depreciation $ 214290
Cost of asset - Salvage value $ 240000
Book value $ 25710
Entry
Cash A/c Dr $ 40000
To Old Boiler $ 25710
To Profit on sale of Boiler $ 14290
( Being entry for sale recognised under SYD method)
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