Mercury Inc. purchased equipment in 2016 at a cost of $157,000. The equipment wa
ID: 2576349 • Letter: M
Question
Mercury Inc. purchased equipment in 2016 at a cost of $157,000. The equipment was expected to produce 300,000 units over the next five years and have a residual value of $37,000. The equipment was sold for $81,800 part way through 2018. Actual production in each year was: 2016 = 42,000 units 2017 = 67,000 units 2018 = 34,000 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 $102,800, prepare the journal entry to record the sale
Explanation / Answer
Cost of the Asset
157000
Residual Value
37000
Depreciable Value
120000
Life of the assets in terms Units
300000
Depreciation per unit
0.4
Year
Number of Units
Depreciation per unit
Depreciation per Year
1
42000
0.4
16800
2
67000
0.4
26800
3
34000
0.4
13600
Accumulated Depreciation
57200
1
Accounts title and Explanation
Debit
Credit
Cash Account
81800
Accumulated Depreciation
57200
Loss on sale of Equipment (157000 - 81800 - 57200)
18000
Equipment Account
157000
2
Accounts title and Explanation
Debit
Credit
Cash Account
102800
Accumulated Depreciation
57200
Equipment Account
157000
Gain on sale of Equipment (102800+57200-157000)
3000
Cost of the Asset
157000
Residual Value
37000
Depreciable Value
120000
Life of the assets in terms Units
300000
Depreciation per unit
0.4