Question

In: Accounting

Marks Consulting purchased equipment costing $45,000 on January 1, Year 1. The equipment is estimated to...

Marks Consulting purchased equipment costing $45,000 on January 1, Year 1. The equipment is estimated to have a salvage value of $5,000 and an estimated useful life of 8 years. Straight-line depreciation is used. If the equipment is sold on July 1, Year 5 for $20,000, the journal entry to record the sale will include a:
Select one:
a. Credit to loss on sale for $10,000.
b. Credit to cash for $20,000.
c. Debit to accumulated depreciation for $22,500.
d. Debit to loss on sale for $10,000.

Solutions

Expert Solution

Depreciation expense = $45,000 - 5,000 / 8 = $5,000 per year

Accumulated depreciation for 4.5 years = $5,000*4.5 = $22,500

Book value of equipment as on July 1, Year 5 = $45,000 - 22,500 = $22,500

Loss on sale of equipment = $22,500 - 20,000 = $2,500

General Journal Debit Credit
Cash $20,000
Accumulated depreciation 22,500
Loss on sale 2,500
Equipment $45,000

Hence option c is correct.

ekkarill92 answered 2 years ago
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