Monday, 17 March 2014

As part of a major renovation at the beginning of the year, Hauser Pharmaceuticals, Inc., sold shelving units (store fixtures) that were 11 years old for $1,110 cash. The shelves originally cost $6,330 and had been depreciated on a straight-line basis over an estimated useful life of 11 years with an estimated residual value of $390. Assuming that depreciation has been recorded to the date of sale, show the effect of the disposal on the accounting equation. Required: (a) Assuming that depreciation has been recorded to the date of sale, show the effect of the disposal on the accounting equation. Indicate the effects (accounts, amounts, and + , – , or "NE" for no effect) of the transaction. Assets = Liabilities + Stockholders' Equity Cash +1,110 No effect NE Gain on disposal +720 Store fixtures -6,330 Accumulated depreciation +5,940 ________________________________________ (b) Prepare the journal entry to record the sale of the shelving units. (Omit the "$" 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) $ 6,330 Accumulated depreciation at the end of 11 year Depreciation expense = ($6,330 cost – $390 residual value) × 1/11 = $540 Accumulated depreciation = $540 annual depreciation expense × 11 yrs = 5,940 ________________________________________ ________________________________________ Book value at the end of tenth year (i.e., immediately prior to sale) $ 390 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Proceeds on sale $ 1,110 Book value (390 ) ________________________________________ ________________________________________ ________________________________________ Gain on sale $ 720


As part of a major renovation at the beginning of the year, Hauser Pharmaceuticals, Inc., sold shelving units (store fixtures) that were 11 years old for $1,110 cash. The shelves originally cost $6,330 and had been depreciated on a straight-line basis over an estimated useful life of 11 years with an estimated residual value of $390. 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
+1,110

No effect
NE

Gain on disposal
+720
 Store fixtures
-6,330






 Accumulated depreciation
+5,940







    
(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)
$
6,330  
  Accumulated depreciation at the end of 11 year


     Depreciation expense = ($6,330 cost – $390 residual value) × 1/11 = $540


     Accumulated depreciation = $540 annual depreciation expense × 11 yrs =

5,940  



  Book value at the end of tenth year (i.e., immediately prior to sale)
$
390  









  Proceeds on sale
$
1,110


  Book value

(390
)






  Gain on sale
$
720