Greenscape Landscaping purchased a tractor at a cost of $38,000 and sold it three years later for $19,300. Greenscape recorded depreciation using the straight-line method, a five-year service life, and a $2,500 residual value. Tractors are included in the Equipment account.Exercise 7-17 (Algo) Part 22. Assume the tractor was sold for $12,100 instead of $19,300. Record the sale. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)
Question
Greenscape Landscaping purchased a tractor at a cost of 19,300. Greenscape recorded depreciation using the straight-line method, a five-year service life, and a 12,100 instead of $19,300. Record the sale. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)
Solution
To record the sale of the tractor for $12,100, we first need to calculate the book value of the tractor at the time of sale.
Step 1: Calculate the annual depreciation expense. The cost of the tractor is 2,500. The tractor has a service life of 5 years. So, the annual depreciation is calculated as (Cost - Residual value) / Service life = (2,500) / 5 = $7,100.
Step 2: Calculate the accumulated depreciation at the time of sale. The tractor was sold after 3 years. So, the accumulated depreciation is Annual depreciation * Number of years = 21,300.
Step 3: Calculate the book value at the time of sale. The book value is calculated as Cost - Accumulated depreciation = 21,300 = $16,700.
Step 4: Record the sale. The tractor was sold for 16,700 - 4,600.
The journal entries to record the sale would be:
Debit: Cash 21,300 Debit: Loss on Sale of Equipment 38,000
This records the cash received from the sale, removes the tractor's cost and accumulated depreciation from the books, and records the loss on the sale.
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