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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.

Answer & Explanation Solved by verified expert
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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