Question

Sloan Company uses its own executive charter plane that originally cost $800,000. It has recorded straight-line depreciation on the plane for six full years, with an $80,000 expected salvage value at the end of its estimated 10-year useful life. Sloan disposes of the plane at the end of the sixth year.
a. At the disposal date, what is the (1) accumulated depreciation and (2) net book value of the plane?
b. Prepare a journal entry to record the disposal of the plane assuming that the sales price is
1. Cash equal to the book value of the plane.
2. $195,000 cash.
3. $600,000 cash.

Answer 1

Answer: See explanation

Explanation:

a1. At the disposal date, the accumulated depreciation will be:

= ($800,000 - $80,000)/10 × 6

= $720,000/10 × 6

= $72000 × 6

= $432,000

a2) The net book value of the plane will be:

= Cost of plane - Accumulated depreciation

= $800000 - $432,000

= $368,000

2. The journal entry when the Cash equal to the book value of the plane will be:

Debit Cash $368,000

Debit accumulated depreciation $432,000

Credit Plane $800,000

2. $195,000 cash.

Debit Cash $195,000

Debit loss on disposal $173,000

Debit accumulated depreciation $432,000

Credit Plane $800,000

3. $600,000 cash.

Debit Cash $600,000

Debit Accumulated depreciation $432,000

Credit Plane $800,000

Credit Gain on disposal $232000