Mercury Inc. purchased equipment in 2019 at a cost of $169,000. The equipment was expected to produce 300,000 units over the next five years and have a residual value of $49,000. The equipment was sold for $103,800 part way through 2021. Actual production in each year was: 2019 = 42,000 units; 2020 = 67,000 units; 2021 = 34,000 units. Mercury uses units-of-production depreciation, and all depreciation has been recorded through the disposal date. Required: 1. Calculate the gain or loss on the sale. 2. Prepare the journal entry to record the sale. 3. Assuming that the equipment was instead sold for $114,800, calculate the gain or loss on the sale. 4. Prepare the journal entry to record the sale in requirement 3.

Mercury Inc.

1. The loss on the sale of the equipment = $8,000.

2. Journal Entry to record the sale:

Debit Cash $103,000

Credit Sale of Equipment $103,000

To record the receipts from the sale.

Debit Sale of Equipment $111,800

Credit Equipment $111,800

To transfer the account to the Sale of Equipment.

Debit Accumulated Depreciation $57,200

Credit Sale of Equipment $57,200

To transfer the account to sale of equipment.

3. The gain on the sale is $3,000

4. Journal Entry to record the sale in requirement 3:

Debit Cash $114,800

Credit Sale of Equipment $114,800

To record the receipts from the sale.

Debit Sale of Equipment $111,800

Credit Equipment $111,800

To transfer the account to the Sale of Equipment.

Debit Accumulated Depreciation $57,200

Credit Sale of Equipment $57,200

To transfer the account to sale of equipment.

Explanation:

a) Data and Calculations:

Cost of equipment = $169,000

Expected production units = 300,000

Estimated useful life = 5 years

Estimated residual value = $49,000

Proceeds from the sale of equipment = $103,000

Depreciable amount = $120,000 ($169,000 - $49,000)

Depreciation expense per unit = $0.40 ($120,000/300,000)

Actual production:     Depreciation Expense for the year

2019 = 42,000 units * $0.40 = $16,800

2020 = 67,000 units * $0.40 = $26,800

2021 = 34,000 units * $0.40 = $13,600

Accumulated depreciation = $57,200

Net book value = $111,800 ($169,000 - $57,200)

Loss on sale of equipment = $8,800 ($111,800 - $103,000)

Sale of equipment for $114,800

Gain on sale of equipment = $3,000 ($111,800 - $114,800)

answer; exemplars;