Mercury Inc. purchased equipment in 2016 at a cost of $143,000. The equipment wa
ID: 2581559 • Letter: M
Question
Mercury Inc. purchased equipment in 2016 at a cost of $143,000. The equipment was expected to produce 370,000 units over the next five years and have a residual value of $32,000. The equipment was sold for $71,900 part way through 2018. Actual production in each year was: 2016 52,000 units; 2017 - 83,000 units; 2018 42,000 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 $108,900, prepare the journal entry to record the sale.Explanation / Answer
Depreciation under Units of production method = (cost - residual value) * units this year / total expected units
Depreciation in the year 2016 = (143,000 - 32,000) * 52,000 / 370,000 = 15,600
Depreciation in the year 2017 = (143,000 - 32,000) * 83,000 / 370,000 = 24,900
Depreciation in the year 2018 = (143,000 - 32,000) * 42,000 / 370,000 = 12,600
Accumulated depreciation = 15,600 + 24,900 + 12,600 = 53,100
1. Loss on sale = (Cost - Accumulated depreciation) - Sale value
= (143,000 - 53,100) - 71,900
= 18,000
Journal entry
2. Gain on sale = Sale value - (Cost - Accumulated depreciation)
= 108,900 - (143,000 - 53,100)
= 19,000
Cash 71,900 Accumulated depreciation 53,100 Loss on sale 18,000 Equipment 143,000