On January 2 2015 Thrifty Clothing Consignments purchased sh

On January 2, 2015, Thrifty Clothing Consignments purchased showroom fixtures for $18,000 cash, expecting the fixtures to remain in service for five years. Thrifty has depreciated the fixtures on a double dedining-balance basis, with zero residual value. On October 31, 2016, Thrifty sold the fixtures for $8,000 cash. Record both depreciation expense for 2016 and sale of the fixtures on October 31, 2016. (Record debits first, then credits. Select the explanation on the last line of the jounal entry table.) Begin by recording the depreciation expense for 2016. Date Accounts and Explanation Debit Credit Oct. 31 Before recording the sale of the fixtures, let\'s calculate any gain or loss on the sale of the fixtures. Market value of assets received Less: Book value of asset disposed of Cost Less: Accumulated Depreciation Gain or (Loss)

Solution

CALCULATION OF THE DEPRECIATION AS PER SUM OF DOUBLE DECLINE METHOD Purchase Cost of Machine $                      18,000 Useful Life = 5 years Depreciation per year = $                        3,600 (Purchase price / Useful life) CALCULATION OF THE RATE OF DEPRECIATION Rate of Depreciation = $ 3,600 / $ 18,000 (Depreication / Purchase price ) Rate of Depreciation = 0.20 or 20% Double decline deprection rate = 20% * 2 = $                                0 Purchase price = $                      18,000 Depreciation for the year 2015 @ 40% = $                        7,200 Closing balance for the year 2015 $                      10,800 Opening Balance for the year 2016 $                      10,800 Depreciation for the year 2016 @40% = $                        4,320 Depreciation for the year 2016 @40% $                        3,600 (Actual depreciation charged is only for 10 months) ($ 4320 X 10 /12) So book Value of the assets sold = $                        7,200 Answer 1) Record the Depreciation expenses for the year 2016 Date Accounts and explanation Debit Credit Oct-31 Depreciation Expenses $                        3,600     To Fixtures $             3,600 (To Record the depreciation of fixtures) Answer =2) Calculation of the Gain or loss on sale of fixtures Sale value of the fixtures = $                        8,000 Less: Book Value of the fixtures $                        7,200 Gain on sale of fixtures $                            800 Answer =3) Record the sale of fixtures for the year 2016 Date Accounts and explanation Debit Credit Oct-31 Cash $                        8,000       To Fixtured $             7,200        To Profit on sale of fixtures $                 800 (To Record the sale of fixtures)