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A machine was purchased at a cost of $52,000. The equipment had an estimated useful life of seven years and a residual value of $3,000. Assuming the equipment was sold at the end of Year 6 for $14,000 cash, which of the following will be included in the journal entry? (Assume the straight-line depreciation method.)

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Answer:

Answer in explanation

Step-by-step explanation:

In this question, we are asked to calculate and state what would be included in the journal entry, given the information in the question.

To calculate this, we proceed as follows using the straight line depreciation method as instructed in the question.

Firstly, mathematically

Depreciation per year =(Cost-Residual value)/Useful life

The cost value according to the question is how much it was bought which is $52,000 , the residual value is $3000. The useful years is the number of years to which it was in use . Plugging these values in the equation, we have;

=(52000-3000)/7=$7000

Next, we calculate book value as on date of sale=52000-(7000*6)=$10000

The gain on sale is thus = Amount sold - book value on date of sales =(14000-10000)=$4000

The following are what we will thus include in the journal entry;

Cash a/c..Dr$14000

Accumulated Depreciation..Dr$42000

To equipment $52000

To gain on sale $4000

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