Question

On January 1, 2018, Dunbar Echo Co. sells a machine for $23,600. The machine was originally purchased on January 1, 2016 for $41,200. The machine was estimated to have a useful life of 5 years and a residual value of $0. Dunbar Echo uses straight-line depreciation. In recording this transaction:

Answer 1

Answer:

The answer is

Dunbar Echo Co will report a loss of $1,120

Explanation:

Straight-line depreciation = (cost of asset - salvage/residual value) ÷ number of useful life

Cost of asset - $41,200

Salvage/residual value - $0

Number of useful life - 5 years

$41,200/5

= $8,240

January 1, 2016 through January 1, 2018 is two years. So accumulated depreciation = $16,480($8,240 x 2)

Carrying value of the asset as at January 1, 2018 is

$41,200 - $16,480

=$24,720.

On this date, the asset was sold for $23,600.

Therefore, Dunbar Echo Co made a loss of $1,120($23,600 - $24,720)

Answer 2

In recording the transaction by Dunbar Echo Co. on January 1, 2018, the following journal entries will be made:

Journal Entries:

Debit Sale of Equipment $41,200

Credit Equipment $41,200

To transfer the Equipment to Sale of Equipment account.

Debit Accumulated Depreciation $16,480

Credit Sale of Equipment $16,480

To transfer the Accumulated Deprciation to Sale of Equipment.

Debit Cash $23,600

Credit Sale of Equipment $23,600

To record the cash receipts from the sale of equipment.

Debit Loss on Sale of Equipment $1,120

Credit Sale of Equipment $1,120

To record the loss on the sale of equipment.

Data and Calculations:

Selling price = $23,600

Cost of machine = $41,200

Estimated useful life = 5 years

Estimated residual value = $0

Accumulated depreciation = $16,480 ($8,240 x 2)

Sale of Equipment $41,200 Equipment $41,200

Accumulated Depreciation $16,480 Sale of Equipment $16,480

Cash $23,600 Sale of Equipment $23,600

Loss on Sale of Equipment $1,120 Sale of Equipment $1,120

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