On January 1, Year 1, Sheffield Corporation purchased equipment for $100,000. Sheffield used the straight-line method of depreciation with a $12,000 salvage value and a useful life of 5-years. On January 1, Year 3, Sheffield sold this equipment for $70,000.Required: a) Calculate the gain or loss Sheffield should recognize from this sale.b) Prepare the journal entry to record the sale.
What will be an ideal response?
a) $5,200 Gain
Annual depreciation = (Cost of $100,000 ? Salvage value of $12,000) ÷ 5 years = $17,600 Book value at January 1, Year 3 = Cost of $100,000 ? Accumulated depreciation of ($17,600 per year × 2 years) = $64,800
Gain on sale = Proceeds from sale of $70,000 ? Book value of $64,800 = $5,200
b)
| Cash | 70,000 | ? |
| Accumulated depreciation | 35,200 | ? |
| Equipment | ? | 100,000 |
| Gain on sale of equipment | ? | 5,200 |
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