Question

On July 1, 2016, Farm Fresh Industries purchased a specialized delivery truck for $175,600. At the time, Farm Fresh estimated the truck to have a useful life of eight years and a residual value of $22,000. On March 1, 2021, the truck was sold for $72,000. Farm Fresh 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 update depreciation in 2021. 2. Prepare the journal entry to record the sale of the truck. 3. Assuming that the truck was instead sold for $97,000, prepare the journal entry to record the sale.

Answer 1

Part 1

Debit : Depreciation Expense $11,200

Credit : Accumulated Depreciation $11,200

Part 2

Debit : Cash $72,000

Debit : Accumulated Depreciation $88,000

Debit : P & L $15,600

Credit : Cost $175,600

Part 3

Debit : Cash $97,000

Debit : Accumulated Depreciation $88,000

Credit : P & L $9,400

Credit : Cost $175,600

Step-by-step explanation:

Depreciation = (Cost - Residual Value) / Useful Life

Annual Depreciation = $19,200

to update depreciation in 2021 = $11,200

Accumulated Depreciation = $88,000