Q9-3TI - Horngren'S Financial And Managerial Accounting

Question

Counselors of Atlanta purchased equipment on January 1, 2017, for \(20,000. Counselors of Atlanta expected the equipment to last for four years and have a residual value of \)2,000. Suppose Counselors of Atlanta sold the equipment for $8,000 on December 31, 2019, after using the equipment for three full years. Assume depreciation for 2019 has been recorded. Journalize the sale of the equipment, assuming straight-line depreciation was used.

Step-by-Step Solution

Answer

Answer

Cash and Accumulated depreciation were debited by $8,000 and $13,500, respectively. Equipment and Gain on the equipment sale are credited by $20,000 and $1,500, respectively.

Step 1: Showing Journal Entry

Date	Accounts	Debit ($)	Credit ($)
	Cash	8,000
	Accumulated depreciation-Equipment	13,500
	Equipment		20,000
	Gain on Disposal		1,500

Step 2: Calculation of profit earned or loss incurred on sale of Equipment

Market value of asset  received	$8,000
Less: Book value of asset disposed of:
Cost                                                    $20,000
Less: Accumulated Depreciation          13,500	6,500
Gain or (loss)	$1,500

When a company selling an asset above its book value then the gain is recorded and it is credited while passing Journal entry.