Total Depreciation

Howarth Manufacturing Company purchased a lathe on June 30, 2007, at a cost of $80,000. The residual value of the lathe was estimated to be $5,000 at the end of a five-year life. The lathe was sold on March 31, 2011, for $17,000. Howarth uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the asset is in service. Prepare the journal entry to record the sale. Assuming the company’s year end is March 31.

Depreciation for 2007-08: ((80000-5000)/5) X 9/12 = 11250
Depreciation for 2008-09: ((80000-5000)/5) = 15000
Depreciation for 2009-10: ((80000-5000)/5) = 15000
Depreciation for 2010-11: ((80000-5000)/5) = 15000
Total Depreciation 46250

Carrying Value on date of sale, ie March 31, 2011 = 80000-46250 =33750 Loss on sale is 33750 – 17000 = 16750
Journal Entry:
Cash Debit – 17000
Loss on Sale of Machine Debit- 16750
Accumulated Depreciation Debit – 46250
MachineCredit – 80000

20. Carnellian sold a piece of equipment for Rs. 30,000 on July 1, 2003. The equipment was purchased January 1, 2000 with an original cost of Rs. 50,000 and a 10 year life. Prepare journal entry for the above transaction assuming that the company calculates depreciation using the double declining method of depreciation.

Assuming the company’s year end is March 31:

Depreciation for 2000-01 for three months:50000/10 X 3/12 = 1250 Depreciation for 2001-02 for entire year:5000
Depreciation for 2002-03 for entire year:5000
Depreciation for 2003-04 for four months: 50000/10 X 3/12 =1250 Total Depreciation =12500
Carrying Value on date of sale: 50000 – 12500 =37500
Loss on sale of equipment 37500 – 30000 =7500
Journal Entry
Cash Debit – 30000
Loss on Sale of Equipment Debit -7500
Accumulated Depreciation Debit – 12500
Equipment Credit – 50000

21. WD Mining Company purchased a section of land for $600,000 in 2000 to develop a zinc mine. The mine began operating in 2002. At that time, management estimated that the mine would produce 200,000 tons of quality ore. A total of 100,000 tons of ore was mined and processed from 2002 through December 31, 2009. During January 2010, a very promising vein was discovered. The revised estimate of ore still to be mined was 250,000 tons. Estimated salvage value for the mine land was $100,000 in both 2002 and 2010. Assuming that 10,000 tons of ore was mined in 2010, calculate the amount of depletion to record in 2010.

Original Cost – 600000
Depreciation till 2009 = (600000-100000) X (100000/200000)250000 Carrying Value on January 1, 2010350000
Depreciation for 2010 = (350000-100000) X 10000/250000 =10000

25. A truck was acquired on July 1, 2008, at a cost of $216,000. The truck had a six-year useful life and an estimated salvage value of $24,000. The straight-line method of depreciation was used. On January 1, 2011, the truck was overhauled at a cost of $20,000, which extended the useful life of the truck for an additional two years beyond that originally estimated (salvage value is still estimated at $24,000). In computing depreciation for annual adjustment purposes, expense is calculated for each month the asset is owned. Prepare the appropriate entries for January 1, 2011 and December 31, 2011.

Assuming the company’s year end is December 31, 2011.

Original Cost – 216000
Depreciation for 2008 for 6 months=(216000-24000)/6 X 6/12=16000 Depreciation for 2009for entire year = (216000-24000)/6=32000 Depreciation for 2010for entire year = (216000-24000)/6=32000 Total depreciation80000

Carrying Value on Jan 1, 2011=216000-80000136000
Subsequent addition to Original Cost – 20000
Total Original Cost – 156000
Remaining Useful life – 4.5 years
Depreciation for 2011 for entire year = (156000-24000)/4.5 =29333

TruckDebit – 20000
CashCredit – 20000

Depreciation Debit – 29333
Accumulated Depreciation Credit – 29333