Swann Company sold a delivery truck on April 1, 2019. Swann had acquired the truck on January 1, 2015, for $40,500. At acquisition, Swann had estimated that the truck would have an estimated life of 5 years and a residual value of $3,000. Swann uses the straight-line method of depreciation. At December 31, 2018, the truck had a book value of $10,500. Required: 1. Prepare any necessary journal entries to record the sale of the truck, assuming it sold for: a.  $9,875 b.  $7,275 2. How should the gain or loss on disposal be reported on the income statement? 3. Assume that Swann uses IFRS and sold the truck for $9,875. In addition, Swann had previously recorded a revaluation surplus related to this machine of $5,000. What journal entries are required to record the sale?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Swann Company sold a delivery truck on April 1, 2019. Swann had acquired the truck on January 1, 2015, for $40,500. At acquisition, Swann had estimated that the truck would have an estimated life of 5 years and a residual value of $3,000. Swann uses the straight-line method of depreciation. At December 31, 2018, the truck had a book value of $10,500.
Required:
1. Prepare any necessary journal entries to record the sale of the truck, assuming it sold for:
a.  $9,875
b.  $7,275
2. How should the gain or loss on disposal be reported on the income statement?
3. Assume that Swann uses IFRS and sold the truck for $9,875. In addition, Swann had previously recorded a revaluation surplus related to this machine of $5,000. What journal entries are required to record the sale?
Expert Solution
Step 1

Working notes:

Computation of Depreciation:

Cost of asset: $40,500

Life of asset:  5 years

Residual Value: $3000

Depreciation:

 [$40,500 - $3000]/5 years

7500 Per annum

Depreciation for 3 months from Jan to March

7500 x 3/12 = $1875

Depreciation for 4 years

7500 x 4 = 30000

Accumulated Depreciation

$30000+$1875 = $31,875

 

 

 

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