Foster Glass Company purchased a fax machine on July 1, 2007 for $1,800. The fax machine had an estimated useful life of three years and a salvage value of $300. Assume Foster uses the double-declining balance (DDB) depreciation method. Foster decided to replace its fax machine with a Bizhub on July 1, 2008, Eagle Outfitters offered to buy the used fax machine from Foster for $1,000 (proceeds received upon purchase). Record on Foster’s books the July 1, 2008 journal entry detailing the sale of the fax machine to Eagle.
The journal entry to record the sale of the fax machine to Eagle on July 1, 2008 is as follows:
Date: July 1, 2008
Account Debit Credit
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Accumulated Depreciation ? $300
Loss on Disposal ? ?
Cash ? $1,000
Equipment ?
Explanation:
1. Record the accumulated depreciation for the fax machine:
- Debit the Accumulated Depreciation account by the amount equal to the accumulated depreciation up to July 1, 2008.
- Credit the Loss on Disposal account by the same amount to record the loss incurred on the sale of the fax machine.
2. Record the proceeds received from the sale of the fax machine:
- Debit the Cash account for the amount received, which is $1,000.
3. Remove the fax machine from the books:
- Credit the Equipment account by the original cost of the fax machine, which is $1,800.
Please note that the exact debit amounts for Accumulated Depreciation and Loss on Disposal may need to be calculated based on the information provided.
To record the July 1, 2008 journal entry for the sale of the fax machine to Eagle, we need to consider the carrying value of the fax machine at the time of the sale. Carrying value is the original cost of the asset minus accumulated depreciation.
First, let's calculate the accumulated depreciation using the double-declining balance (DDB) depreciation method:
Step 1: Calculate the depreciation expense for the first year.
DDB depreciation expense = (2 / Useful life) * Book value at the beginning of the year
Book value at the beginning of the year = Original cost - Accumulated depreciation (at the end of the previous year)
Given information:
Original cost = $1,800
Useful life = 3 years
Accumulated depreciation (at the end of the previous year) = $1,800 - $300 (salvage value) = $1,500
DDB depreciation expense (first-year) = (2 / 3) * $1,500 = $1,000
Step 2: Calculate the book value at the beginning of the second year.
Book value at the beginning of the second year = Original cost - Accumulated depreciation (at the end of the first year)
Accumulated depreciation (at the end of the first year) = $1,500
Book value at the beginning of the second year = $1,800 - $1,500 = $300
Now that we have calculated the accumulated depreciation for the first year and the book value at the beginning of the second year, we can determine the carrying value at the time of the sale.
The carrying value on July 1, 2008 = Book value at the beginning of the second year - Depreciation expense for the second year
Given information:
Depreciation expense for the second year = DDB depreciation expense (first-year) = $1,000
Book value at the beginning of the second year = $300
Carrying value on July 1, 2008 = $300 - $1,000 = -$700
Since the carrying value is negative, it means that the fax machine is fully depreciated, and we need to remove it from the books.
Now, record the journal entry for the sale of the fax machine to Eagle on July 1, 2008:
Date | Account | Debit | Credit
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Jul 1, 2008 | Accounts Receivable | - | $1,000
| Accumulated Depreciation | - | $1,500
| Loss on Sale of Asset | - | $800
| Fax Machine | - | -
Explanation:
1. Debit Accounts Receivable for $1,000. This represents the proceeds received from the sale of the fax machine to Eagle.
2. Debit Accumulated Depreciation for $1,500. This reduces the accumulated depreciation of the fax machine.
3. Debit Loss on Sale of Asset for $800. This represents the difference between the carrying value of the fax machine ($700) and the proceeds from the sale ($1,000). Since the carrying value is negative, a loss is recorded.
4. Credit Fax Machine. This removes the fax machine from the books as it is no longer owned by Foster Glass Company.
Note: Please consult with an accounting professional to ensure the accuracy and appropriateness of the journal entry for your specific situation.