Prepare the journal entries to record the following transactions for XYZ company
ID: 2462322 • Letter: P
Question
Prepare the journal entries to record the following transactions for XYZ company, which has a calender year end and uses straight-line method of depreciation.
a) On September 30, 2014, the company sold old equipment for $46,000. The equipment was purchased on January 1, 2012, for $96,000 and was estimated to have a $16,00 salvage value at the end of its 5-year life. Depreciation on the equipment has been recorded through December 31, 2013.
b) On June 30, 2014, the company sold the old equipment for $24,000. The equipment originally cost $36,000 and had accumulated depreciation to the date of disposal of $15,000.
Explanation / Answer
1)
Depreciation per year = (96000-1600) / 5 = $18880
Depreciation for the first 2 years ( 2012 and 2013) = 2 x 18880 = $37760
Depreciation upto sept 30 2014 from Jan1 2014 = (9/12)*18880 = $14160
Accumulated depreciation as on 30th september 2014 = 37760+14160 = $51920
Book Value on the date of sale = $96000 - $51920 = $44080
Profit on sale of the asset = $46000 - $44080 = $1920
Journal:
Cash...............................................Dr. $46000
Accumulated Depreciation................Dr. $51920
Profit on sale of equipmentt.....................................Cr. $1920
Equipment..............................................................Cr. $96000
b) Book value of the asset on the date of sale = $36000 - $15000 = $21000
Profit on sale = $24000 - $21000 = $3000
Journal:
Cash...............................................Dr. $24000
Accumulated Depreciation................Dr. $15000
Profit on sale of equipmentt.....................................Cr. $3000
Equipment..............................................................Cr. $36000