on january 2, 2024, thrifty clothing consignments purchased showroom fixtures for $10,000 cash, expecting…
on january 2, 2024, thrifty clothing consignments purchased showroom fixtures for $10,000 cash, expecting the fixtures to remain in service for five years. thrifty clothing consignments has depreciated the fixtures on a double - declining - balance basis, with zero residual value. on august 31, 2025, thrifty clothing consignments sold the fixtures for $5,000 cash. record both depreciation expense for 2025 and sale of the fixtures on august 31, 2025. (record debits first, then credits. select the explanation on the last line of the journal entry table. note that 2024 depreciation was recorded and posted in 2024.)\nbegin by recording the depreciation expense for january 1, 2025 through august 31, 2025.
Answer
Explanation:
Step1: Calculate the double - declining - balance depreciation rate
The straight - line depreciation rate is (\frac{1}{5}= 0.2). The double - declining - balance depreciation rate (r = 2\times0.2=0.4)
Step2: Calculate the book value at the beginning of 2025
The book value at the beginning of 2024 is (BV_{2024}=10000). The depreciation expense in 2024 is (Dep_{2024}=10000\times0.4 = 4000). So the book value at the beginning of 2025 is (BV_{2025}=10000 - 4000=6000)
Step3: Calculate the depreciation expense for 2025
The depreciation expense for 2025 is calculated for 8 months. The formula for double - declining - balance depreciation is (Dep_{t}=BV_{t - 1}\times r\times\frac{n}{12}), where (n) is the number of months in the period. Here, (BV_{t - 1}=6000), (r = 0.4), and (n = 8). So (Dep_{2025}=6000\times0.4\times\frac{8}{12}=1600)
Step4: Record the depreciation expense journal entry
The journal entry for depreciation expense is:
| Date | Accounts and Explanation | Debit | Credit |
|---|---|---|---|
| Aug 31 | Depreciation Expense | (1600) | |
| Accumulated Depreciation - Fixtures | (1600) | ||
| Explanation: To record depreciation expense for fixtures for 8 months in 2025 |
Step5: Record the sale of the fixtures
The accumulated depreciation up to August 31, 2025 is (4000 + 1600=5600). The book value at the time of sale is (BV=10000-5600 = 4400). The cash received is (5000). The gain on sale is (Gain=5000 - 4400=600) The journal entry for the sale is:
| Date | Accounts and Explanation | Debit | Credit |
|---|---|---|---|
| Aug 31 | Cash | (5000) | |
| Accumulated Depreciation - Fixtures | (5600) | ||
| Fixtures | (10000) | ||
| Gain on Sale of Fixtures | (600) | ||
| Explanation: To record sale of fixtures, related accumulated depreciation, and gain on sale |
Answer:
Depreciation expense journal entry:
| Date | Accounts and Explanation | Debit | Credit |
|---|---|---|---|
| Aug 31 | Depreciation Expense | (1600) | |
| Accumulated Depreciation - Fixtures | (1600) |
Sale of fixtures journal entry:
| Date | Accounts and Explanation | Debit | Credit |
|---|---|---|---|
| Aug 31 | Cash | (5000) | |
| Accumulated Depreciation - Fixtures | (5600) | ||
| Fixtures | (10000) | ||
| Gain on Sale of Fixtures | (600) |