Question

On July 1, 2011, Hale Kennels sells equipment for $66,000. The equipment was originally purchased on July 1, 2007 at a cost $180,000, had an estimated 5-year life and an expected salvage value of $30,000. The company books depreciation annually. What is the balance in Accumulated Depreciation as of December 31, 2010? What is the journal entry to update depreciation as of July 1, 2011? What is the journal entry to record the sale of the equipment?

Answer 1

Answer:

journal entry to update depreciation as of July 1, 2011

Depreciation Expense $16,000 (debit)

Accumulated Depreciation $16,000 (credit)

journal entry to record the sale of the equipment

Cash $66,000 (debit)

Accumulated Depreciation $128,000 (debit)

Equipment $180,000 (credit)

Profit and Loss $14,000 (credit)

Explanation:

If Hale Kennels uses the straight line method then the calculations will be as follows :

Annual Depreciation Charge = (Cost - Residual Value) ÷ Estimated Useful Life

                                                = ($180,000 - $30,000) ÷ 5

                                                = $32,000

Therefore,

Depreciation Charges for the period in use will be as follows :

2007 = $16,000 ($32,000 × 1/2)

2008 = $32,000

2009 = $32,000

2010 = $32,000

2011 =  $16,000 ($32,000 × 1/2)

Total Accumulated depreciation = $128,000

Explaining journal entry to record the sale of the equipment

1. Derecognize the Cost of the Asset

2. Derecognize the Accumulated depreciation

3. Recognize the Cash Proceeds

4. Recognize the Profit or Loss arising from the sale