Chapter 11, Problem 11.38E

Retirement and replacement depreciation

• Appendix B

Cadillac Construction Company uses the retirement method to determine depreciation on its small tools. During 2016, the first year of the company’s operations, tools were purchased at a cost of $8,000. In 2018, tools originally costing $2,000 were sold for $250 and replaced with new tools costing $2,500.

Required:

1. Prepare journal entries to record each of the above transactions.

2. Repeat requirement 1 assuming that the company uses the replacement depreciation method instead of the retirement method.