Q10SE - Horngren'S Financial And Managerial Accounting

Question

Selling an asset at gain or loss Peter Company purchased equipment on January 1, 2018, for \(28,000. Suppose Peter Company sold the equipment for \)4,000 on December 31, 2019. Accumulated Depreciation as of December 31, 2019, was $11,000. Journalize the sale of the equipment, assuming straight-line depreciation was used.

Step-by-Step Solution

Answer

The business entity will incur $13,000 as a loss on the sale.

Step 1: Definition of straight-line Method

The method of calculating the depreciation under which each year of the useful life of the asset reports the same depreciation is known as the straight-line method. The depreciation method under this method is calculated using salvage value, cost, and useful life. 

Step 2: Preparing Journal Entries on the sale of the Equipment of Loss Peter Company

Date	Account & Explanation	Debit ($)	Credit ($)
31 Dec 2019	Cash	$4,000
	Accumulated depreciation	$11,000
	Loss on sale of equipment	$13,000
	Equipment		$28,000
	(To record the sale of equipment)