Steve Company purchased a tractor at a cost of $180,000. The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years, or 10,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,100 hours in 2020. On January 1, 2021, the company decided to sell the tractor for $70,000. Steve uses the units-of-production method to account for the depreciation on the tractor. Based on this information, the entry to record the sale of the tractor will show:

Question

Malcolm Lam

Business

11 April, 18:12

Steve Company purchased a tractor at a cost of $180,000. The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years, or 10,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,100 hours in 2020. On January 1, 2021, the company decided to sell the tractor for $70,000. Steve uses the units-of-production method to account for the depreciation on the tractor. Based on this information, the entry to record the sale of the tractor will show:

+4

Answers (1)

Know the Answer?

Desiree Whitaker · Answer 1

Loss on sale = $38,000

Explanation:

The computation of sale of tractor is shown below:-

Total depreciation = ($180,000 - $20,000) * (2,400 + 2,100) : 10000

= $72,000

Net book value on January 1, 2021 = Tractor cost - Total depreciation

= $180,000 - $72,000

= $108,000

Loss on sale = Total depreciation - Net book value on January 1, 2021

= $70,000 - $108,000

= $38,000

Therefore for computing the sale of tractor we simply applied the above formula.