Prepare the journal entries to record the following transactions for Reese Company, which has a calendar year end and uses the straight-line method of depreciation.

a. On September 30, 2017, the company sold old equipment for $46,000. The equipment was purchased on January 1, 2015, for $96,000 and was estimated to have a $16,000 salvage value at the end of its 5-year life. Depreciation on the equipment has been recorded through December 31, 2016.

b. On June 30, 2017, the company sold old equipment for $24,000. The equipment originally cost $36,000 and had accumulated depreciation to the date of disposal of $15,000.

Reese Company Journal entries

September 30, 2017

Dr Depreciation Expense 12,000

Cr Accumulated Depreciation - Equipment 12,000

(To record depreciation expense)

Dr Cash 46,000

Dr Accumulated Depreciation-Equipment 44,000

Dr Loss on Disposal of Plant Assets 6,000

Cr Equipment 96,000

(To record sale of delivery equipment at a loss)

b) On June 30, 2017

Dr Cash 24,000

Dr Accumulated Depreciation-Equipment 15,000

Cr Equipment 36,000

Cr Gain on Disposal of Plant Assets 3,000

(To record sale of office equipment at a gain)

Explanation:

a. September 30, 2017

Calculation for Depreciation Expense and Accumulated Depreciation - Equipment

We have to record depreciation expense for the first 9 months of 2017 which is

$80,000 : 5 years = $16,000 * 9/12 = $12,000

Calculation for Accumulated Depreciation-Equipment:

($32,000 + $12,000) = 44,000

Calculation for Loss on Disposal of Plant Assets

($52,000 - $46,000) = 6,000

b) On June 30, 2017

Calculation for Gain on Disposal of Plant Assets

($24,000 - $21,000) = 3,000