Question

Counselors of Savannah purchased equipment on January ​1, 2017​, for $43,000.

Counselors of Savannah expected the equipment to last for five years and have a residual value of $500.
Suppose Counselors of Savannah sold the equipment for $27,200 on December 31,2018 after using the equipment for two full years.
Assume depreciation for 2018 has been recorded.
Journalize the sale of the​ equipment, assuming​ straight-line depreciation was used:________

Answer 1

Book value by December 31,2018=$26,000

gain on the sale by December 31, 2018=$1,200

Step-by-step explanation:

The expression for the accumulated depreciation is as follows;

depreciable cost=Acquisition cost-residual value

where;

acquisition cost=$43,000

residual value=$500

replacing;

depreciable cost=43,000-500=$42,500

depreciable cost=$42,500

The annual depreciation can be expressed as;

annual depreciation=depreciable cost/estimated life

where;

depreciable cost=$42,500

estimated life=5 years

replacing;

annual depreciation=42,500/5=8,500

annual depreciation=$8,500

Accumulated depreciation after 2 years=annual depreciation×2=(8,500×2)=$17,000

Book value=acquisition cost-accumulated depreciation

where;

acquisition cost=$43,000

accumulated depreciation=$17,000

replacing;

Book value=43,000-17,000=$26,000

net gain/loss=sale-book value

net gain/loss=27,200-26,000

gain on the sale by December 31, 2018=$1,200