On July 1, 2016, Farm Fresh Industries purchased a specialized delivery truck for $126,000. At the time, Farm Fresh estimated the truck to have a useful life of eight years and a residual value of $30,000. On March 1, 2021, the truck was sold for $58,000. Farm Fresh 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. Required:1. Prepare the journal entry to update depreciation in 2021.2. Prepare the journal entry to record the sale of the truck. 3. Assuming that the truck was instead sold for $80,000, prepare the journal entry to record the sale.

Part 1. Prepare the journal entry to update depreciation in 2021.

Depreciation Expense $ 2,000 (debit)

Accumulated Depreciation $ 2,000 (credit)

Part 2. Prepare the journal entry to record the sale of the truck.

Cash $58,000 (debit)

Accumulated Depreciation $ 56,000 (debit)

Loss on Sale of Delivery Truck $12,000 (debit)

Delivery Truck $ 126,000 (credit)

Part 3. Assuming that the truck was instead sold for $80,000

Cash $80,000 (debit)

Accumulated Depreciation $ 56,000 (debit)

Profit on Sale of Delivery Truck $10,000 (credit)

Delivery Truck $ 126,000 (credit)

Explanation:

Part 1. Prepare the journal entry to update depreciation in 2021.

Depreciation Expense 2021 = (126000-30000) / 8*2/12

= 2000

Part 2. Prepare the journal entry to record the sale of the truck.

Accumulated Depreciation

2016 = (126000-30000) / 8*1/2 = 6000

2017 to 2020 = (126000-30000) / 8*4=48000

2021 = (126000-30000) / 8*2/12 = 2000

Total Depreciation = 56000

Loss on Sale = Selling Price less Carrying Amount

= $58,000 - ($126,000-$56,000)

= - $12,000

Part 3. Assuming that the truck was instead sold for $80,000

Profit on Sale = Selling Price less Carrying Amount

= $80,000 - ($126,000-$56,000)

= $10,000

Note; Carrying Amount of an Asset = Cost less Accumulated Depreciation