Howarth Manufacturing Company purchased a lathe on June 30, 2014, at a cost of $80,000. The residual valueof the lathe was estimated to be $5,000 at the end of a five-year life. The lathe was sold on March 31, 2018, for$17,000. Howarth uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the asset is in service.Required:1. Prepare a schedule to calculate the gain or loss on the sale.2. Prepare the journal 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.
Howarth Manufacturing Company purchased a lathe on June 30, 2014, at a cost of $80,000. The residual value
of the lathe was estimated to be $5,000 at the end of a five-year life. The lathe was sold on March 31, 2018, for
$17,000. Howarth uses the
Required:
1. Prepare a schedule to calculate the gain or loss on the sale.
2. Prepare the
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