Equipment was purchased for 24000 on January 1 2016 The equi

Equipment was purchased for $24,000 on January 1, 2016. The equipment\'s estimated useful life was five years, and its residual value was $4,000. The straight-line method of depreciation was used. The company has a calendar year accounting period. Prepare the journal entry to record the sale of the equipment for s25,000 on January 3, 2017.

Solution

Date

Account Titles and Explanation

Debit ($)

Credit ($)

January 3, 2017

Cash A/c

25,000

Accumulated Depreciation - Equipment A/c

4,000

To Equipment A/c

24,000

To Gain on sale of Equipment A/c

5,000

[Journal Entry to record the sale of Equipment for $25,000 on January 3,2017 ]

Depreciation under straight line method

Depreciation Expenses = [Cost – Residual Value] / Useful Life

Depreciation Expenses for the year December 31, 2016

= [$24,000 – 4,000] / 5 years

= $4,000 per year

Book Value of the Equipment as on January 3, 2017

= Cost of the Equipment – Accumulated Depreciation

= $24,000 – 4,000

= $20,000

Gain on sale of Equipment

= Sale Proceeds – Book Value of the Equipment

= $25,000 – 20,000

= $5,000

Date	Account Titles and Explanation	Debit ($)	Credit ($)
January 3, 2017	Cash A/c	25,000
	Accumulated Depreciation - Equipment A/c	4,000
	To Equipment A/c		24,000
	To Gain on sale of Equipment A/c		5,000
	[Journal Entry to record the sale of Equipment for $25,000 on January 3,2017 ]