Chen Company Chen Company office equipment costs $10,000, has an expected life of four years and a salvage value of $400.The firm has depreciated this asset on a straight-line basis.The firm has recorded depreciation for two years and then sells the equipment at midyear in the third year.
If the Chen Company sells the equipment for $4,000 cash, the entry to record the sale would be as follows:

Question

Quizplus · Accepted Answer

The straight-line depreciation per year is calculated as (Cost - Salvage Value) / Useful Life = ($10,000 - $400) / 4 = $2,400 per year. After two years, the accumulated depreciation is $2,400 * 2 = $4,800. However, since the equipment is sold in the middle of the third year, an additional half-year depreciation is recorded, which is $2,400 / 2 = $1,200. Therefore, the total accumulated depreciation at the time of sale is $4,800 + $1,200 = $6,000. The sale for $4,000 results in the cash account being credited by $4,000, the accumulated depreciation being debited by $6,000, and the equipment account being debited by its original cost of $10,000 to remove it from the books.

Chen Company Chen Company Office Equipment Costs $10,000, Has an Expected