Homework SourseAdditional Exercise 261 Lynn Company owns equipment that cos
Additional Exercise 261
Lynn Company owns equipment that cost $120,000 when purchased on January 1, 2012. It has been depreciated using the straight-line method based on estimated salvage value of $15,000 and an estimated useful life of 5 years.
Prepare Lynn Company\'s journal entries to record the sale of the equipment in these four independent situations. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Sold for $32,000 on October 1, 2015
Date
Account Titles and Explanation
Debit
Credit
(a)
| Additional Exercise 261 Lynn Company owns equipment that cost $120,000 when purchased on January 1, 2012. It has been depreciated using the straight-line method based on estimated salvage value of $15,000 and an estimated useful life of 5 years.
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| (To record disposal of equipment at a loss) |
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Solution
Annual Depreciation under straight line = (Cost - Salvage Value)/Useful life
= ($120,000 - $15,000)/5 yrs = $21,000 per year
Depreciation charged from 1/1/12 to 12/31/14 = $21,000*3 years = $63,000
Journal Entries to record the sale are shown as follows: (Amounts in $)
| Date | Account Titles and Explanation | Debit | Credit |
| a) Jan 1, 2015 | Cash | 58,000 | |
| Accumulated Depreciation-Equipment | 63,000 | ||
| Gain on disposal of Equipment (Bal. fig.) | 1,000 | ||
| Equipment | 120,000 | ||
| b) May 1, 2015 | Depreciation Expense ($21,000*4/12) | 7,000 | |
| Accumulated Depreciation-Equipment | 7,000 | ||
| (To record depreciation expense) | |||
| May 1, 2015 | Cash | 58,000 | |
| Accumulated Depreciation-Equipment (63,000+7,000) | 70,000 | ||
| Gain on disposal of Equipment (Bal. fig.) | 8,000 | ||
| Equipment | 120,000 | ||
| (To record disposal of equipment at a gain) | |||
| c) Jan 1, 2015 | Cash | 32,000 | |
| Accumulated Depreciation-Equipment | 63,000 | ||
| Loss on disposal of Equipment (Bal. fig.) | 25,000 | ||
| Equipment | 120,000 | ||
| d) Oct 1, 2015 | Depreciation Expense ($21,000*9/12) | 15,750 | |
| Accumulated Depreciation-Equipment | 15,750 | ||
| (To record depreciation expense) | |||
| Oct 1, 2015 | Cash | 32,000 | |
| Accumulated Depreciation-Equipment (63,000+15,750) | 78,750 | ||
| Loss on disposal of Equipment (Bal. fig.) | 9,250 | ||
| Equipment | 120,000 | ||
| (To record disposal of equipment at a loss) |
