1 answer

Howarth Manufacturing Company purchased equipment on June 30, 2017, at a cost of $160,000. The residual...

Question:

Howarth Manufacturing Company purchased equipment on June 30, 2017, at a cost of $160,000. The residual value of the equipment was estimated to be $10,000 at the end of a five-year life. The equipment was sold on March 31, 2021, for $43,000. Howarth uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the asset is in service.

Required: 1. Prepare the journal entry to record the sale.
2. Assuming that Howarth had instead used the double-declining-balance method, prepare the journal entry to record the sale.


Answers

1.

Depreciation under Straight line method = (Cost - Residual value) / Estimated useful life

= ($160,000 - $10,000) / 5

= $30,000

Depreciation expense
2017 $15,000 ($30,000*6/12)
2018 $30,000
2019 $30,000
2020 $30,000
2021 $7,500 ($30,000*3/12)
$112,500
March 31, 2021 Cash $43,000
Accumulated depreciation $112,500
Loss on sale $4,500
Equipment $160,000

2.

Depreciation under Double declining balance method = (Cost - Accumulated depreciation) / Useful life * 2

Depreciation expense
2017 $32,000 [($160,000 - $0)/5*2*6/12]
2018 $51,200 [($160,000-$32,000)/5*2]
2019 $30,720 [($160,000-$32,000-$51,200)/5*2]
2020 $18,432 [($160,000-$32,000-$51,200-$30,720)/5*2]
2021 $2,765 [($160,000-$32,000-$51,200-$30,720-$18,432)/5*2*3/12]
$135,117
March 31, 2021 Cash $43,000
Accumulated depreciation $135,117
Gain on sale $18,117
Equipment $160,000
.

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