Ace Corporation purchased equipment on July 1, 2009 for the following: Purchase
ID: 2444234 • Letter: A
Question
Ace Corporation purchased equipment on July 1, 2009 for the following:Purchase price $100,000
Sales tax 6,000
Installation 3,000
Delivery 1,000
Total $110,000
Ace estimates that it will use the equipment for five years and its residual value will be $10,000. Ace uses the straight line method of depreciation and its accounting year end is December 31.
On December 31, 2010 Ace sells the equipment for $75,000.
Required: Prepare all necessary journal entries and adjusting journal entries for Ace for 2009 and 2010
Explanation / Answer
Dr $ Cr $ 1-Jul-09 Equipment 100000 Sales Tax 6000 Installation Csharges 3000 Delivery Charges 1000 Cash 110000 (Being Asset purchased) (OR) Equipment 110000 Cash 110000 (Being Asset purchased) 31-Dec-09 Depreciation 10000 Accumulated Depreciation 10000 (Being Depreciation for 6 months) 31-Dec-10 Depreciation 20000 Accumulated Depreciation 20000 (Being Depreciation for one year) 31-Dec-10 Cash 75000 Accumulated Depreciation 30000 Loss on Sale of equipment 5000 Equipment 110000 (Being Equipment sold for loss of $5000) Working: Depreciation =(Asset Value - Residual Value) / Estimated life time =(110000 - 10000) / 5 = $20,000