On January 1 year 1 the Parson Company purchased a truck for $126,000. The salvage value is $6,000 and the life is five years. The Parson Company uses the sum of the years digits method of depreciation. On January 1, Year 3 the Parson Company sold the truck to the Simplex company who uses the straight line method of depreciation. Prepare the working paper journal entry for December 31 year 3, 4, 5.
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.
On January 1 year 1 the Parson Company purchased a truck for $126,000. The salvage value is $6,000 and the life is five years. The Parson Company uses the sum of the years digits method of
Prepare the working paper
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