Mercury Inc. purchased equipment in 2016 at a cost of $313,000. The equipment wa
ID: 2567965 • Letter: M
Question
Mercury Inc. purchased equipment in 2016 at a cost of $313,000. The equipment was expected to produce 310,000 units over the next five years and have a residual value of $34,000. The equipment was sold for $167,900 part way through 2018. Actual production in each year was: 201644,000 units; 2017-70,000 units: 2018 = 35,000 units. Mercury uses units-of-production depreciation, and all depreciation has been recorded through the disposal date. Required: 1. Prepare the journal entry to record the sale 2. Assuming that the equipment was sold for $181.900, prepare the journal entry to record the saleExplanation / Answer
Showing journal entries in the books of Mercury Inc.
Cost of the equipment=$313000
Salvage value=$34000
Expected total production for next 5 years=310000 units
Calculation of depreciation using units of production method
=(cost-salvage value)*production for the year/expected total production
Depreciation per unit is ($313000-$34000)/310000=$0.9 per unit
Depreciation for year 2016=$0.9*44000 units=$39600
WDV at the end of 2016=$313000-$39600=$273400
Depreciation for the year 2017=$0.9*70000units=$63000
WDV at the end of the year 2017=$273400-$63000=$210400
Depreciation for the year 2018=$0.9*35000 units=$31500
WDV at the end of the year 2018=$210400-$31500=$178900
The equipment sold at$167900
Hence the loss from the sale of asset=$178900-$167900=$11000
If the asset sold
Cash/bank/Debtor A/C. Dr. $167900
Loss on sale of equipment A/C Dr. $11000
To Equipment A/c. $167900
(Being asset sold for loss)
If the equipment was sold for $181900
Profit on sale of equipment. $181900-$178900=$3000
Cash/bank/debtor A/C. Dr. $181900
To. Profit ona sale of equipment. A/C. $3000
To. Equipment A/C $178900
Being asset sold for profit