Question

Recording partial-year depreciation and sale of an asset On January 2, 2017, Comfy Clothing Consignments purchased showroom fixtures for \(17,000 cash, expecting the fixtures to remain in service for five years. Comfy has depreciated the fixtures on a double-declining-balance basis, with zero residual value. On October 31, 2018, Comfy sold the fixtures for \)7,600 cash. Record both depreciation expense for 2018 and sale of the fixtures on October 31, 2018.

Short answer

A business entity will generate a gain of $800 on the furniture sale.

Step-by-step solution

Definition of Depreciation

A company charged the expenses to report the decline in the value of the fixed assets acquired by the company is known as depreciation expenses.

Recording journal entries

Date	Accounts and Explanation	Debit $	Credit $
31 Oct 2018	Depreciation expenses	$3,400
	Accumulated depreciation		$3,400
31 Oct 2018	Cash	$7,600
	Accumulated depreciation	$10,200
	Gain on sale		$800
	Furniture and fixture		$17,000

Recording journal entries

Working note:

$\begin{array}{c}Depreciationrate=\frac{100\%}{Usefullife}\times 2\\ =\frac{100\%}{5}\times 2\\ =40\%\end{array}$

Year	Depreciation base	X	Depreciation rate	=	Depreciation expenses
2017	$17,000	X	40%	=	$6,800
2018	$10,200	X	40%	=	$3,400
Total	=	$10,200

Note: Depreciation for year 2018 is calculated for 10 months. Therefore, it is multiplied by (10/12)