Answer:
Given that,
Acquired value of equipment on January 1, 2021 = $30,000
Useful life = 4 years
Residual value = $3,000
Equipment was sold on December 31, 2023 = $10,300
Company uses straight-line depreciation,
Annual Straight line depreciation:
= (Value of equipment - Residual value) ÷ useful life
= ($30,000 - $3,000) ÷ 4 year
= $6,750
Total accumulated depreciation from 1 Jan 2021 to 31 Dec 2023:
= No. of years × Annual Straight line depreciation
= 3 years × $6,750
= $20,250
Book value at time of sale:
= Value of equipment - Total accumulated depreciation
= $30,000 - $20,250
= $9,750
Therefore, the selling value of equipment is larger than the book value. Hence, there is a gain on sale as follows:
= Selling value - Book value
= $10,300 - $9,750
= $550
The journal entry is as follows:
On December 31, 2023
Cash A/c Dr. $10,300
Accumulated Depreciation - equipment A/c Dr. $20,250
To Gain on sale $550
To equipment $30,000
(To record the gain on sale)
