Equipment acquired on January 8 at a cost of $168,000 has an estimated useful life of 18 years, has an estimated residual value of $15,000, and is depreciated by the straight-line method.
a. What was the book value of the equipment at December 31 the end of the fourth year?
b. Assuming that the equipment was sold on April 1 of the fifth year for $125,000, journalize the entries to record (1) depreciation for the three months until the sale date and (2) the sale of the equipment.
Answer:
a. Cost of equipment.............................................................................. $168,000
Less accumulated depreciation at end of fourth year, December 31
(4 years at $8,500 per year)............................................................... 34,000
Book value at end of fourth year, December 31....................................... $134,000
Yearly depreciation = ($168,000 – $15,000) ÷ 18 = $8,500
b. Apr. 1 Depreciation Expense—Equipment 2,125
Accumulated Depreciation—Equipment 2,125
Equipment depreciation
($8,500 × 3 ÷ 12).
1 Cash125,000
Accumulated Depreciation—Equipment 36,125
Loss on Sale of Equipment 6,875
Equipment168,000
*Accumulated Depreciation—Equipment = $34,000 + $2,125 = $36,125