Equipment acquired on January 2, 2013 at a cost of $305,500 has an estimated useful life of eight years and an estimated residual value of $24,500. Required: (1) What is the annual amount of depreciation for the years 2013, 2014, and 2015, assuming the straight-line method of depreciation is used? (2) What was the book value of the equipment on January 1, 2016? (3) Assuming that the equipment was sold on January 2, 2016, for $178,000, journalize the entry to record the sale. (4) Assuming that the equipment had been sold on January 2, 2016, for $204,000 instead of $178,000, journalize the entry to record the sale.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Equipment acquired on January 2, 2013 at a cost of $305,500 has an estimated useful life of eight years and an estimated residual value of $24,500.
Required:
| (1) | What is the annual amount of |
| (2) | What was the book value of the equipment on January 1, 2016? |
| (3) | Assuming that the equipment was sold on January 2, 2016, for $178,000, |
| (4) | Assuming that the equipment had been sold on January 2, 2016, for $204,000 instead of $178,000, journalize the entry to record the sale. |
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