Prepare the journal entries to record the following transactions for Ogleby Comp
ID: 2598355 • Letter: P
Question
Prepare the journal entries to record the following transactions for Ogleby Company which has a calendar year end and uses the straight-line method of depreciation.
On September 30, 2015, the company exchanged old delivery equipment and $36,000 for new delivery equipment. The old delivery equipment was purchased on January 1, 2013, for $126,000 and was estimated to have a $18,000 salvage value at the end of its 5-year life. Depreciation on the delivery equipment has been recorded through December 31, 2014. It is estimated that the fair value of the old delivery equipment is $54,000 on September 30, 2015. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)
Prepare the journal entries to record the following transactions for Ogleby Company which has a calendar year end and uses the straight-line method of depreciation.
Explanation / Answer
Depreciation of old equipment till December 31, 2014
= [(Purchase price - salvage value)/ useful life ] * 2 years
= [(126000 - 18000) / 5] * 2
= $43200
Depreciation for 9 months till September 30, 2015
= [ (126000 - 18000) / 5 ] * (9/12)
= $16200
Total accumulated depreciation on September 30, 2015
= 43200 + 16200
= $59400
Book value of old equipment on September 30, 2015
= purchase price - total accumulated depreciation
= 126000 - 59400
= $66600
Loss on exchange of old equipment
= Book value on September 30, 2015 - Fair value on September 30,2015
= 66600 - 54000
= $12600
Value of new equipment
= Fair value of old equipment + Cash paid
= 54000 + 36000
= $90000
(To record exchange of old delivery equipment for new delivery equipment at a loss.)
On June 30, 2015
Book value of old equipment on June 30, 2015
= Purchase price - Accumulated depreciation
= 80000 - 35000
= $45000
Gain on exchange of old equipment
= Fair value - Book value on June 30, 2015
= 60000 - 45000
= $15000
Value of new equipment
= Fair value of old equipment + Cash paid
= 60000 + 40000
= $100000
Date Account Title Debit Credit September 30, 2015 Depreciation $16200 To Accumulated Depreciation $16200 (To record depreciation expense for 9months of 2015.) September 30, 2015 Accumulated Depreciation $59400 To Equipment (old) $59400 (Depreciation written off from equipment account.) September 30, 2015 Equipment (new) $90000 Loss on exchange of equipment $12600 To cash $36000 To Equipment (new) $66600(To record exchange of old delivery equipment for new delivery equipment at a loss.)