6.

Disposal of Fixed Asset

Equipment acquired on January 6 at a cost of $144,900 has an estimated useful life of 7 years and an estimated residual value of $18,900.

a. What was the annual amount of depreciation for Years 1-3 using the straight-line method of depreciation?

Year	Depreciation Expense
Year 1	$fill in the blank 8af63d05c072fff_1
Year 2	$fill in the blank 8af63d05c072fff_2
Year 3	$fill in the blank 8af63d05c072fff_3

b. What was the book value of the equipment on January 1 of Year 4? $fill in the blank 8af63d05c072fff_4

Feedback

Asset cost minus residual value equals depreciable cost.

Asset cost minus accumulated depreciation equals book value. The Accumulated Depreciation account is a permanent account and therefore the balance in the account grows each year of the asset's life.

c. Assuming that the equipment was sold on January 3 of Year 4 for $86,400, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

	Cash	fill in the blank 9cbf4f005fa5faa_2	fill in the blank 9cbf4f005fa5faa_3
	Accumulated Depreciation-Equipment	fill in the blank 9cbf4f005fa5faa_5	fill in the blank 9cbf4f005fa5faa_6
	Loss on Sale of Equipment	fill in the blank 9cbf4f005fa5faa_8	fill in the blank 9cbf4f005fa5faa_9
	Equipment	fill in the blank 9cbf4f005fa5faa_11	fill in the blank 9cbf4f005fa5faa_12

Feedback

Compare the book value amount to the sale price. If the book value is less than the sale price, the asset was sold for a gain. If the book value is more than the sale price, the equipment was sold for a loss.

d. Assuming that the equipment had been sold on January 3 of Year 4 for $92,700 instead of $86,400, journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

	Cash	fill in the blank bd83a0fa9faeffe_2	fill in the blank bd83a0fa9faeffe_3
	Accumulated Depreciation-Equipment	fill in the blank bd83a0fa9faeffe_5	fill in the blank bd83a0fa9faeffe_6
	Equipment	fill in the blank bd83a0fa9faeffe_8	fill in the blank bd83a0fa9faeffe_9
	Gain on Sale of Equipment	fill in the blank bd83a0fa9faeffe_11	fill in the blank bd83a0fa9faeffe_12