Answered Essay: 4. On July 15, 2018, Cottonwood Industries sold a patent and equipment to Roquemore Corporation for $950,000 and $425,000, respectively. The book value of the patent and equipment on the date of sale were $220,000 and $520,000 (cost of $770,000 less accumulated depreciation of $250,000), respectively.

4. On July 15, 2018, Cottonwood Industries sold a patent and equipment to Roquemore Corporation for $950,000 and $425,000, respectively. The book value of the patent and equipment on the date of sale were $220,000 and $520,000 (cost of $770,000 less accumulated depreciation of $250,000), respectively.

  
Prepare the journal entries to record the sales of the patent and equipment(If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)

5. Mondale Winery depreciates its equipment using the group method. The cost of equipment purchased in 2016 totaled $515,000. The estimated residual value of the equipment was $49,000 and the group depreciation rate was determined to be 18%.

What is the annual depreciation for the group? If equipment that cost $51,000 is sold in 2017 for $44,000, what amount of gain or loss will the company recognize for the sale? (Enter your answers in whole dollars.)

Annual depreciation ?
? ?

Expert Answer

 

Answer 4
Journal entry to record sale of the plant and equipment
Date Account Titles Debit Credit
July 15,2018 Cash $950,000
Patent $220,000
Gain on sale of patent $730,000
July 15,2018 Cash $425,000
Loss on sale of equipment $95,000
Equipment $520,000
Answer 3
Calculation of annual depreciation using group method
Annual Depreciation = (cost of equipment – residual value)*18%
Annual Depreciation = ($515000 – $49000)*18% = $83,880
Calculation of Gain/loss on sale of equipment
Book value of Equipment costing $51000 in 2017 = $51000 – ($51000*18%) = $41,820
Gain on sale of equipment = Sale value of equipment – Book value of equipment as on 2017
Gain on sale of equipment = $44000 – $41820 = $2,180
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