Equipment acquired on January 6 at a cost of $375,000 has an estimated useful life of 20 years and an estimated residual value of $25,000.
A. What was the annual amount of depreciation for the Years 1-3 using the straight-line method
of depreciation?
B. What was the book value of the equipment on January 1 of Year 4?
C. Assuming that the equipment was sold on January 3 of Year 4 for $300,000, journalize the
entry to record the sale.
D. Assuming that the equipment had been sold on January 3 of Year 4 for $325,000 instead
of $300,000, journalize the entry to record the sale.

A. Year 1 $17,500

Year 2 $17,500

Year 3 $17,500

B. $322,500

C. Dr Cash$300,000

Dr Accumulated Depreciation-Equipment$52,500

Dr Loss on disposal of Equipment$22,500

Cr Equipment $375,000

D. Dr Cash$325,000

Dr Accumulated Depreciation-Equipment$52,500

Cr Equipment $375,000

Cr Gain on disposal of Equipment $2,500

Explanation:

A. Calculation to determine What was the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation

Year 1 Depreciation expense Year 1=($375,000-$25,000)/20 years

Year 1 Depreciation expense Year=$17,500

Year 2 Depreciation expense Year=($375,000-$25,000)/20 years

Year 2 Depreciation expense Year=$17,500

Year 3 Depreciation expense Year=($375,000-$25,000)/20 years

Year 3 Depreciation expense Year=$17,500

Therefore the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation is :

Year 1 $17,500

Year 2 $17,500

Year 3 $17,500

B. Calculation to determine What was the book value of the equipment on January 1 of Year 4

Book value of Equipment=[$375,000-($17,500*3)]

Book value of Equipment=[$375,000-$52,500)

Book value of Equipment=$322,500

Therefore the book value of the equipment on January 1 of Year 4 is $322,500

C. Preparation of the journal entry to record the sale.

Jan. 3

Dr Cash$300,000

Accumulated Depreciation-Equipment$52,500

($17,500*3)

Dr Loss on disposal of Equipment$22,500

($322,500-$300,000)

Cr Equipment $375,000

(To record sales)

D. Preparation of the journal entry to record the sale.

Jan. 3

Dr Cash$325,000

Dr Accumulated Depreciation-Equipment$52,500

($17,500*3)

Cr Equipment $375,000

Cr Gain on disposal of Equipment $2,500

($325,000+$52,500-$375,000)

(To record sales)

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