Abbott Landscaping purchased a tractor at a cost of $29,000 and sold it three years later for $15,700. Abbott recorded depreciation using the straight-line method, a five-year service life, and a $4,000 residual value. Tractors are included in the Equipment account. Required:
Record the sale of equipment.

Cash                                             15700 Dr

Accumulated depreciation         15000 Dr

   Equipment - Tractor                       29000 Cr

   Gain on sale - Equipment               1700 Cr

Explanation:

The straight line method of depreciation charges a constant depreciation expense per year throughout the useful life of the asset. The formula for depreciation expense under this method is,

Depreciation expense = (Cost - Residual value) / Estimated useful life of the asset

Depreciation expense per year = (29000 - 4000) / 5 = $5000 per year

As the asset was sold after three years, the accumulated depreciation on the asset would be = 5000 * 3 = $15000

The NBV or carrying value of the asset will be = 29000 - 15000 = 14000

The gain on sale of equipment will be = 15700 - 14000 = $1700

disadvantages of leasing a vehicle: no vehicle equity and mileage limitations

disadvantages of purchasing a vehicle: large down payment and vehicle depreciation

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