Question

The following are some transactions of Cullumber Company for 2024. Cullumber Company uses straight line depreciation and has a December 31 yer end April 1 retired a piece of equipment that was purchased on January 1, 2015 for $53,000. The equipment had an expected useful life of 10 years with no residual value. July 30 Sold equipment for $1,600 cash. The equipment was purchased on January 3, 2022 for $13,320 and was depreciated over an expected useful life of 3 years with no residual value Nov 10 Traded in an old vehicle for an new vehicle receiving a $10,000 trade in allowance and paying $36,000 cash. The old vehicle had been pruchased on November 1, 2018 at a cost of $37,000. The estimated useful life was 8 years and the estimated residual value was $7,000 . the fair value of the old vehicle was $9,400 on November 1,2024

Answer 1

April 1: Retired Equipment - Recorded a $53,000 debit to Accumulated Depreciation and a $53,000 credit to Equipment. July 30: Sold Equipment - Recognized a $1,600 cash inflow and recorded a $7,280 loss. November 10: Traded Old Vehicle - Logged a $26,250 depreciation debit, a $1,350 loss debit, and a $10,000 gain credit.

Let's record the disposals for each transaction:

1. April 1: Retired Equipment

- Accumulated Depreciation (Equipment) - Debit: $53,000 (original cost)

- Equipment - Credit: $53,000 (to remove from the books)

Note: Since there is no residual value, the entire cost of the equipment is expensed upon retirement.

2. July 30: Sold Equipment

- Cash - Debit: $1,600 (proceeds from the sale)

- Accumulated Depreciation (Equipment) - Debit: Depreciation for the period

- Loss on Sale of Equipment - Debit: Difference between original cost and sale proceeds

- Equipment - Credit: $13,320 (original cost of the equipment)

Note: Calculate the depreciation for the period and the loss on the sale.

3. November 10: Traded in Old Vehicle for New Vehicle

- Accumulated Depreciation (Old Vehicle) - Debit: Depreciation for the period

- Loss on Disposal of Old Vehicle - Debit: Difference between the book value and fair value

- Old Vehicle - Credit: Original cost of the old vehicle

- Cash - Credit: $36,000 (amount paid for the new vehicle)

- Trade-in Allowance (Gain) - Credit: Difference between fair value and book value

- New Vehicle - Debit: Cost of the new vehicle

Note: Calculate the depreciation for the period, loss on disposal, and the gain from the trade-in.

These entries ensure that the company accurately reflects the disposals in its financial records. The calculations for depreciation, gains, and losses depend on the exact values of depreciation expense and fair values, which need to be calculated based on the information provided.

Let's calculate the necessary amounts for each transaction:

1. April 1: Retired Equipment

- Accumulated Depreciation (Equipment):

`\[ \text{Accumulated Depreciation} = \frac{\text{Original Cost}}{\text{Useful Life}} * \text{Depreciation Period} \] \[ \text{Accumulated Depreciation} = (\$53,000)/(10) * (2024 - 2015 + 1) \] \[ \text{Accumulated Depreciation} = \$5,300 * 10 = \$53,000 \]`

- Accumulated Depreciation (Equipment) - Debit: $53,000

- Equipment - Credit: $53,000

2. July 30: Sold Equipment

- Depreciation for the period:

`\[ \text{Depreciation} = \frac{\text{Original Cost}}{\text{Useful Life}} * \text{Depreciation Period} \] \[ \text{Depreciation} = (\$13,320)/(3) * 7 \] \[ \text{Depreciation} = \$4,440 \]`

`\[ \text{Book Value} = \text{Original Cost} - \text{Accumulated Depreciation} \] \[ \text{Book Value} = \$13,320 - \$4,440 = \$8,880 \]`

- Loss on Sale of Equipment:

`\[ \text{Loss} = \text{Book Value} - \text{Proceeds from Sale} \] \[ \text{Loss} = \$8,880 - \$1,600 = \$7,280 \]`

Entry:

- Cash - Debit: \$1,600

- Accumulated Depreciation (Equipment) - Debit: \$4,440

- Loss on Sale of Equipment - Debit: \$7,280

- Equipment - Credit: \$13,320

3. November 10: Traded in Old Vehicle for New Vehicle

- Depreciation for the period:

`\[ \text{Depreciation} = \frac{\text{Original Cost} - \text{Estimated Residual Value}}{\text{Useful Life}} * \text{Depreciation Period} \] \[ \text{Depreciation} = (\$37,000 - \$7,000)/(8) * (2024 - 2018 + 1) \] \[ \text{Depreciation} = (\$30,000)/(8) * 7 = \$26,250 \]`

`\[ \text{Book Value} = \text{Original Cost} - \text{Accumulated Depreciation} \] \[ \text{Book Value} = \$37,000 - \$26,250 = \$10,750 \]`

- Loss on Disposal of Old Vehicle:

`\[ \text{Loss} = \text{Book Value} - \text{Fair Value} \] \[ \text{Loss} = \$10,750 - \$9,400 = \$1,350 \]`

Gain} = $10,000

Entry:

- Accumulated Depreciation (Old Vehicle) - Debit: $26,250

- Loss on Disposal of Old Vehicle - Debit: $1,350

- Old Vehicle - Credit: $37,000

- Cash - Credit: $36,000

- Trade-in Allowance (Gain) - Credit: $10,000

- New Vehicle - Debit: Cost of the new vehicle (assuming it's equal to the fair value of the old vehicle, $9,400)