A farm purchased a new tractor for $30,000. They estimated the
tractor would have a useful...
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Accounting
A farm purchased a new tractor for $30,000. They estimated thetractor would have a useful life of 5 years and would have asalvage value of $5,000. The farm uses the straight-line method andthe half-year convention. The farm sold the tractor during year 3for $19,000.
1. Compute the amount of depreciation expense to be taken inyears 1, 2 and 3
Year 1
Year 2
Year 3
2. Prepare a journal entry to record the sale of the tractor inyear 3.
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3.7 Ratings (361 Votes)
Computation of annual depreciation
i
Cost
=
30000
ii
Salvage
value=
5000
iii=i-ii
Depreciable cost
25000
iv
usefull
life =
5
v=iii/iv
Annual
depreciation=
5000
1. Compute the amount of depreciation expense to be taken
in years 1, 2 and 3
Amount
Year
1
5000/2
2500
<<
Since we are using half year convention>>
Year
2
5000
Year
3
5000
2
Prepare a journal entry to record the sale of the tractor in year
3.
i
cost
30000
ii
Total
depreciation =
12500
iii=i-ii
Written
down value =
17500
iv
sales
price =
19000
v=iv-iii
Profit on sale
1500
Journal
entry
Account
Dr
Cr
Cash
19000
Profit on
sale
1500
tractor
17500
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