Additionally, if you could prepare the journal entry to record the sale assuming
ID: 2594422 • Letter: A
Question
Additionally, if you could prepare the journal entry to record the sale assuming they are using the sum-of-year's digits depreciation method.
Howarth Manufacturing Company purchased a lathe on June 30, 2012, at a cost of $175,000. The residual value of the lathe was estimated to be $10,000 at the end of a five-year life. The lathe was sold on March 31, 2016, for $48,000. Howarth uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the asset is in service Required: 1. Prepare the journal entry to record the sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)Explanation / Answer
,1) Depreciation under Straight line method = (Cost-Salvage value)/useful life =($175,000-$10,000)/5 years
= $165,000/5 = $33,000 per year
Depreciation for 2012 = $33,000*6/12 = $16,500
Depreciation for 2013,2014 and 2015 = $33,000*3 years = $99,000
Depreciation for 2016 = $33,000*3/12 = $8,250
Total depreciation charged = $16,500+$99,000+$8,250 = $123,750
Book value on March 31, 2016 = $175,000-$123,750 = $51,250
Loss on Sale = Book Value - Sale consideration = $51,250-$48,000 = $3,250
Journal Entry (Amount in $)
2) Sum of years = 1+2+3+4+5 = 15
Depreciable base = $175,000-$10,000 = $165,000
Depreciation for 2012 = $165,000*1/15*6/12 = $5,500
Depreciation for 2013,2014 and 2015 = ($165,000*2/15)+($165,000*3/15)+($165,000*4/15) = 99,000
Depreciation for 2016 = $165,000*5/15*3/12 = $13,750
Total Depreciation charged = $5,500+$99,000+$13,750 = $118,250
Book Value as on March 31, 2016 = $175,000-$118,250 = $56,750
Loss on Sale = $56,750-$48,000 = $8,750
Journal Entry (Amount in $)
Date Account Title Debit Credit March 31, 2016 Cash 48,000 Loss on Sale 3,250 Plant and Equipment 51,250 (To record the sale of machine)