As part of a major renovation at the beginning of the year, Hauser Pharmaceuticals, Inc., sold shelving

As part of a major renovation at the beginning of the year, Hauser Pharmaceuticals, Inc., sold shelving units (store fixtures) that were 9 years old for $1,210 cash. The shelves originally cost $5,190 and had been depreciated on a straight-line basis over an estimated useful life of 9 years with an estimated residual value of $420. Assuming that depreciation has been recorded to the date of sale, show the effect of the disposal on the accounting equation.

     

Required:
(a)	Assuming that depreciation has been recorded to the date of sale, show the effect of the disposal on the accounting equation. Indicate the effects (accounts, amounts, and + , – , or "NE" for no effect) of the transaction.

  

Assets		=	Liabilities		+	Stockholders' Equity
Cash	+1,210		No effect	NE		Gain on disposal	+790
Store fixtures	-5,190
Accumulated depreciation	+4,770

   

(b)	Prepare the journal entry to record the sale of the shelving units. (Omit the "$" sign in your response.)

     

General Journal	Debit	Credit
Cash
Accumulated depreciation on store fixtures
Store fixtures
Gain on sale of store fixtures

rev: 10_14_2011

Explanation:

Store fixtures (original cost)	$	5,190
Accumulated depreciation at the end of 9 year
Depreciation expense = ($5,190 cost – $420 residual value) × 1/9 = $530
Accumulated depreciation = $530 annual depreciation expense × 9 yrs =		4,770
Book value at the end of tenth year (i.e., immediately prior to sale)	$	420

Proceeds on sale	$	1,210
Book value		(420	)
Gain on sale	$	790