Question

On January 1, 2018, Shehata Coffee Shop (SCS) acquired kitchen equipment for $31,800 cash. SCS estimated a $1,200 residual value and an estimated useful life of 4 years. SCS uses straight-line depreciation computed monthly. On July 1, 2021, the company sold the equipment for $5,700 cash.

Required:

a. Calculate the annual Depreciation Expense; show your work, 1.5 points
b. Provide the journal entry to record the sale, show your work, 6 points

Answer 1

Depreciation is $7,650

The journal entries for sale :

Dr Cash $5,700

Dr accumulated depreciation $26,775

Cr Kitchen equipment $31,800

Cr Gain on disposal of kitchen equipment $675

Step-by-step explanation:

Annual depreciation =cost-residual value/useful life

cost is $31,800

residual value is $1,200

useful life is 4 years

Annual depreciation=($31,800-$1,200)/4=$7,650

The kitchen equipment was disposed off when it has been used for 3 years and six months,hence the accumulated depreciation is shown below:

=annual depreciation*3.5

accumulated depreciation=$7.650*3.5=$26,775.00