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 straight-line 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 following is the correct answer and a complete explanation of the solution to the problem.
On July 1 2007 the Equipment account would have a debit balance of $1800 (equipment would have been debited and cash or another account credited.) On December 31 2007 the calculation for the depreciation would be for 6 months (July 1 2007 to December 31, 2007) as follows. Original cost $1800 minus $300 salvage value = $1500 divided by 3 years useful life ...
This solution contains an accounting depreciation problem which includes the follow.
1) How to calculate straight-line depreciation for a partial year.
2) How to record a journal entry to show the sale of an old fixed asset, the loss on disposal, and replacement with a new fixed asset.
Although the problem shown here is taken from another accounting text, the detail step-by-step explanation of this topic provides students with a clear understanding of the concept. Thank you for using BrainMass.com. Have a great day!