Equipment acquired on January 8 at a cost of $100,870, has an estimated useful life of 12 years, has an estimated residual value of $9,550, and is depreciated by the straight-line method. Assuming that the equipment was sold on April 1 of the fifth year for $61,657, journalize the entries to record (1)
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 8 at a cost of $100,870, has an estimated useful life of 12 years, has an estimated residual value of $9,550, and is depreciated by the straight-line method.
- Assuming that the equipment was sold on April 1 of the fifth year for $61,657, journalize the entries to record (1) depreciation for the three months until the sale date, and (2) the sale of the equipment.
I have already determined the book value of the equipment at December 31 the end of the fourth year to be $70,430.
$100,870 – $9,550/12 years = $7,610 $100,870 – 30,440 ($7,610 x 4 years) = $70,430
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