Mercury Inc. purchased equipment in 2019 at a cost of $143,000. The equipment was expected to produce 370,000 units over the next five years and have a residual value of $32,000. The equipment was sold for $71,900 part way through 2021. Actual production in each year was: 2019

1. Dr Cash $71,900

Dr Accumulated Depreciation - equipment $37,500

Dr Loss on sale of equipment $33,600

Cr Equipment $143,000

2.Dr Cash $108,900

Dr Accumulated depreciation -

equipment $37,500

Cr Equipment $143,000

Cr Gain on sale of equipment $3,400

Explanation:

1. Preparation of the journal entry to record the sale

Dr Cash $71,900

Dr Accumulated Depreciation - equipment $37,500

Dr Loss on sale of equipment $33,600

($143,000-$71,900-$37,500)

Cr Equipment $143,000

2. Preparation of the journal entry to record the sale

Dr Cash $108,900

Dr Accumulated depreciation -

equipment $37,500

Cr Equipment $143,000

Cr Gain on sale of equipment $3,400

($108,900+$37,500-$143,000)

Calculation for the Accumulated Depreciation

Depreciation per unit ($143,000-$32,000)/370,000 units = .3

Depreciation=(83,000 units +42,000 units)x .3 Depreciation=37,500

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