Ex: 2 A company purchased and installed equipment on January 1 at a total cost o

Question

Ex: 2 A company purchased and installed equipment on January 1 at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no salvage value. The equipment was disposed of on July 1 of the fourth year. The company uses the calendar year. 1. Prepare the general journal entry to update depreciation to July 1 in the fourth year. 2. Prepare the general journal entry to record the disposal of the equipment under each of these three independent situations: a. The equipment was sold for $22,000 cash. b. The equipment was sold for $15,000 cash. c. t he equipment was totally destroyed in a fire and the insurance company settled the claim for $18,000 cash.

Explanation / Answer

1. Journal entry :

2. Journal entry :

Date accounts & explanation debit credit July 1 Depreciation expenses a/c (72000/5)*6/12 7200 Accumlated depreciation a/c 7200 (To record update depreciation)

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