A company purchased and installed equipment on January 1 at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no salvage value. The equipment was disposed of on July 1 of the fourth year. The company uses the calendar year.1. Prepare the general journal entry to update depreciation to July 1 in the fourth year.2. Prepare the general journal entry to record the disposal of the equipment under each of these three independent situations:a. The equipment was sold for $22,000 cash.b. The equipment was sold for $15,000 cash.c. The equipment was totally destroyed in a fire and the insurance company settled the claim for $18,000 cash.
What will be an ideal response?
| 1 | July 1 | Depreciation expense - Equipment | 7,200 | ? |
| ? | ? | Accumulated depreciation - Equipment | ? | 7,200 |
| ? | ? | $72,000/5 x 6/12 = $7,200 | ? | ? |
| ? | ? | ? | ? | ? |
| 2a | July 1 | Cash | 22,000 | ? |
| ? | ? | Accumulated depreciation - Equipment* | 50,400 | ? |
| ? | ? | Gain on Disposal of Asset | ? | 400 |
| ? | ? | Equipment | ? | 72,000 |
| ? | *($72,000/5) x 3 ½ years = $50,400 | ? |
| ? | ? | ? | ? | ? |
| 2b | July 1 | Cash | 15,000 | ? |
| ? | ? | Accumulated depreciation - Equipment | 50,400 | ? |
| ? | ? | Loss on Disposal of Asset | 6,600 | ? |
| ? | ? | Equipment | ? | 72,000 |
| ? | ? | ? | ? | ? |
| 2c | July 1 | Cash | 18,000 | ? |
| ? | ? | Accumulated depreciation - Equipment | 50,400 | ? |
| ? | ? | Loss from Fire | 3,600 | ? |
| ? | ? | Equipment | ? | 72,000 |
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