ACCT 201 Principles of Financial Accounting
Practice Examination
Combined Chapters 5-8
Dr. Fred Barbee

Solution to Problem #1

Problem #

On April 1, 2005, a company disposed of equipment for $14,200 cash that had cost $35,000 on January 1, 2001. The equipment had a salvage value of $5,000 and a useful life of 10 years. The double-declining-balance depreciation method was used. On December 31, 2004, accumulated depreciation was $20,664. Prepare a journal entry to record depreciation for 2005 up to the date of disposal of the equipment. Prepare a journal entry to record the disposal of the equipment.

Solution
2005 Depreciation to Date of Disposal
Depreciation Expense
716.80

Accumulated Depreciation - Equipment

716.80

($35,000 - $20,664) x .2 x (3/12) = $716.80

**2005 Depreciation to Date of Disposal**
Depreciation Expense	716.80
Accumulated Depreciation - Equipment		716.80
($35,000 - $20,664) x .2 x (3/12) = $716.80

Entry to record disposal of equipment
Accumulated Depreciation - Equipment
21,380.80

Cash
14,200.00

Equipment

35,000.00

Gain on Sale of Equipment*

580.80

**Entry to record disposal of equipment**
Accumulated Depreciation - Equipment	21,380.80
Cash	14,200.00
Equipment		35,000.00
Gain on Sale of Equipment*		580.80

Calculation of Gain on Sale of Equipment
Cost of equipment
$35,000.00

Accumulated Depreciation ($20,664 + $716.80)
21,380.80

Book Value of equipment
$13,619.20

Cash received
14,200.00

Gain on sale
$580.80

Cost of equipment	$35,000.00
Accumulated Depreciation ($20,664 + $716.80)	21,380.80
Book Value of equipment	$13,619.20
Cash received	14,200.00
Gain on sale	$580.80