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zetablue1 · Oct 12, 2010, 02:30 PM

Dec. 31 Discarded a delivery truck that was purchased on January 1, 2004. The truck cost $39,000. It was depreciated based on a 6-year useful life with a $3,000 salvage value. Instructions: Journalize all entries required on the above dates, including entries to update depreciation, where applicable, on assets disposed of. Ingles Company uses straight-line depreciation. (Assume
depreciation is up to date as of December 31, 2007.)

Dec 31 Depreciation Expense Debit $6000
Accumulated Depreciation - Delivery truck Credit $6000
(To record depreciation to date of retirement)

Accumulated Depreciation Debit $30,000
Loss on Disposal Debit $9000
Equipment - Delivery truck Credit $39,000
(To record retirement of delivery equipment at a loss)

I am sure the 3000 difference disposal amount and depreciation amount has to do with the salvage value but I don't understand what to do with the salvage value. Any help would be very much appreciated.

pready · Oct 12, 2010, 03:42 PM

Salvage value is what the company thinks that the asset will be worth at the end of its useful life. It is only used to determine the depreciable base for an asset, which is the cost of the asset minus the salvage value. Since you are using the straight line depreciation method you take the depreciable base and divide it by the number of years of useful life, which will be your depreciation expense per year of the asset.

I take it that your journal entries are for year 5, which means that your journal entries look correct to me. You have to remove the asset on your books at cost, your accumulated depreciation to date, and the difference will be a loss, because you did not receive anything in return for the asset.