9SE - Horngren'S Financial And Managerial Accounting

Question

Alpha Communication purchased equipment on January 1, 2018, for \(27,500. Suppose Alpha Communication sold the equipment for \)20,000 on December 31, 2020. Accumulated Depreciation as of December 31, 2020, was $10,000. Journalize the sale of the equipment, assuming straight-line depreciation was used.

Step-by-Step Solution

Answer

The gain on disposal of equipment is $2,500 and the required journal entries are passed.

Computation of Gain or loss

$\begin{array}{c}\mathbf{Gainor}\mathbf{\left(}\mathbf{loss}\mathbf{\right)}\mathbf{=}\mathbf{Market}\mathbf{ }\mathbf{Value}\mathbf{ }\mathbf{of}\mathbf{ }\text{A}\mathbf{sset}\mathbf{ }\text{R}\mathbf{eceived}\mathbf{-}\mathbf{(}\mathbf{Less}\text{B}\mathbf{ook}\text{V}\mathbf{alue}\mathbf{-}\mathbf{Accumulated}\mathbf{ }\mathbf{Depreciation}\mathbf{)}\\ \mathbf{=}\mathrm{\$}\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{(}\mathrm{\$}\mathbf{27}\mathbf{,}\mathbf{500}\mathbf{-}\mathrm{\$}\mathbf{10}\mathbf{,}\mathbf{000}\mathbf{)}\\ =\$2,500\end{array}$

Journal entry to record depreciation and disposal of the equipment

Journal Entry
Date	Accounts and Explanation	Debit ($)	Credit ($)
Dec 31	Accumulated Depreciation- Equipment	10,000
	Cash	20,000
	Equipment		27,500
	Gain on disposal		2,500
	(Sold equipment for cash)