23 E Recording partial-year depreciat... [FREE SOLUTION]

Chapter 9: 23 E (page 488)

Recording partial-year depreciation and sale of an asset On January 2, 2016, Pet Spa purchased fixtures for $37,800 cash, expecting the fixtures to remain in service for six years. Pet Spa has depreciated the fixtures on a straight-line basis, with $9,000 residual value. On May 31, 2018, Pet Spa sold the fixtures for $24,200 cash. Record both depreciation expense for 2018 and sale of the fixtures on May 31, 2018

Short Answer

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Loss on sale of Equipment value is $2,000.

Step by step solution

Definition of Straight-Line Method

The method of calculating the depreciation under which each year of the useful life of the asset reports the same depreciation is known as the straight-line method. The depreciation method under this method is calculated using salvage value, cost, and useful life.

Calculate the Depreciation by using Straight – Line method

Date	Accounts and Explanation	Debit $	Credit $
31 May 2018	Depreciation expenses	2,000
	Accumulated depreciation		2,000

31 May 2018	Cash	24,200
	Accumulated depreciation	11,600
	Loss on sale	2,000
	Furniture and Fixture		37,800


	(To record the sale of asset)

Working note:

Calculation of annual depreciation

$\begin{matrix} A n n u a l d e p r e c i a t i o n = \frac{C o s t 鈭� S a l v a g e v a l u e}{E s t i m a t e d u s e f u l l i f e} \\ = \frac{$ 37, 800 鈭� $ 9, 000}{6} \\ = $ 4, 800 \end{matrix}$

Depreciation from 1 Jan 2018 to 31 May 2018:

$\begin{matrix} D e p r e c i a t i o n f o r 2018 = A n n u a l d e p r e c i a t i o n 脳 \frac{5}{12} \\ = $ 4, 800 脳 \frac{5}{12} \\ = $ 2, 000 \end{matrix}$

Particulars	Amount	Amount
Cash received against sale		$ 24,200
Less: Book value of asset disposed of cost	$ 37,800
Less : Accumulated Depreciation	($ 11,600)	(26,200)
Loss		$2,000

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a	Purchase price of three acres of land	$86,000
b	Delinquent real estate taxes on the land to be paid by safe parking	6,300
c	Additional dirt and earth removing	8,400
d	Title insurance and the land acquisition	3,400
e	Fence around the boundary of the property	9,600
f	Building permit for building	900
g	Architect鈥檚 fee for design of building	20,100
h	Signs near the front of property	9,000
i	Material used to construct the building	217,000
J	Labor to construct the building	172,000
k	Interest cost on construction loan for the building	9,500
l	Parking lots on the property	29,400
m	Lights for parking lots	11,600
n	Salary of construction supervisor(80% to building; 20% to parking lot and concrete walks)	80,000
o	Furniture	11,700
p	Transportation of furniture from seller to the building	1,900
q	Additional fencing	6,900

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Short Answer

Step by step solution

Definition of Straight-Line Method

Calculate the Depreciation by using Straight – Line method

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