Assume that on January 2, 2016, Daeva Furniture purchased fixtures for $8,700 ca

Question

Assume that on January 2, 2016, Daeva Furniture purchased fixtures for $8,700 cash, expecting the fixtures to remain in service for five years. Daeva has depreciat the fixtures on a double-declining-balance basis, with $1,400 estimated residual value. On August 31, 2017, Daeva sold the fixtures for $2,500 cash. Requirement 1. Record both the depreciation expense on the fixtures for 2017 and the sale of the fixtures. Apart from your journal entry, also show how to compute the gain or lo on Daeva's disposal of these fixtures. Start by recording depreciation expense on the fixtures for 2017. (Record debits first, then credits. Exclude explanations from any journal entries) ournal Entry Date Accounts Debit Credit Aug 31 Before we record the sale of the fixtures, let's compute the gain or loss on the disposal of the fixtures. Begin by determining the formula needed to calculate the gain or loss and then complete the calculation to determine the amount. (Use a minus sign or parentheses for a loss.) Gain (Loss) on sale Now record the sale of the fixtures on August 31,2017. Journal Entry hoose from any list or enter any number in the input fields and then continue to the next question

Explanation / Answer

As per declining balance method, Depreciation expense = 2 / N * (Cost - Accumulated depreciation)

So, Depreciation for 2016 = 2 / 5 * $8700 = $3480

Depreciation from January 1,2017 to 31 August 2017 (8 months) = (2/5) * ($8700 - $3480) * 8/12

= 0.4 * ($5220) *8/12 = $2088* 8/12 = $1392

Journal entry for Depreciation expense in 2017 is:

Debit : Depreciation expense $1392

Credit: Accumulated Depreciation $1392

Computation of Gain / loss on sale :

Gain / loss on sale = Selling price - (Cost of the asset - accumulated depreciation of asset)

Accumulated Depreciation = $3480 + $1392 = $4872

Gain / loss on sale = $2500 - ($8700 - $4872) = $2500 - $3828 = ($1328)

There is a loss of $1328 on sale.

Journal entry to record the sale on August 31 2017 is:

Debit: Cash $2500

Debit: Accumulated Depreciation $4872

Debit : Loss on sale of fixtures $1328

Credit: Fixtures (Cost) $8700

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