Chapter 7, Problem 58E

1.

To determine

Concept Introduction:

Straight-line Depreciation:

Depreciation is done by allocating the cost of the fixed assets other than land to expense over the useful life of the asset. The most commonly used method of depreciation is the straight-line method. In this method, every year until the useful life of the asset, an equal amount of assets cost to depreciation expense is allocated.

Disposal of fixed assets:

Fixed assets are disposed of by a company either voluntarily or involuntarily. Voluntary disposal occurs when the useful life of the asset is over or due to technological obsolescence. An involuntary disposal occurs due to damage from fire, theft or natural calamities.

To Prepare:

Journal entry to record the sale of the car assuming the car is sold for (a) $9800 cash,

(b) $7500 cash and (c) $11500 cash.

2.

To determine

Concept Introduction:

Disposal of fixed assets:

Fixed assets are disposed of by a company either voluntarily or involuntarily. Voluntary disposal occurs when the useful life of the asset is over or due to technological obsolescence. An involuntary disposal occurs due to damage from fire, theft or natural calamities.

Income Statement:

A company’s income statement shows the revenues, expenses and profit/loss earned over a period of time. It is one of the three important financial statements prepared by the company.

To explain:

The reporting of gain or loss on the disposition on the income statement.