In: Accounting
On January 1, Delivery, Inc. purchased a truck for $67,500 with a $6,000 salvage value and a four-year life. The company used the straight-line method of depreciation. The truck was sold on December 31, Year 2 for $22,500. Which of the following is one effect of recording the truck sale in the accounting records?
Select one: A. The Truck account is reduced by $33,000.
B. The Accumulated Depreciation account is reduced by $30,750.
C. A loss of $45,000 is recognized.
D. Cash is increased by $45,000.
Answer- The following is one effect of recording the truck sale in the accounting records= The Accumulated Depreciation account is reduced by $30,750.
Explanation- Straight line Method- Annual depreciation
= Cost of asset- Salvage value of asset/No. of useful life (years)
=($67500-$6000)/4 years
=$61500/4 years
= $15375
Depreciation expense per year = $15375.
Accumulated depreciation on December 31, Year 2 = $15375+$15375
= $30750
Book value at the end of year 2 = $67500-$30750 = $36750
Loss on sale of truck = $36750-$22500
= $14250
Journal entry for sale truck are as follows-
Date | Accounts Titles & Explanation | Debit | Credit |
$ | $ | ||
Dec-31 | Cash | 22500 | |
Year 2 | Accumulated depreciation-Truck | 30750 | |
Loss on sale of truck | 14250 | ||
Truck | 67500 | ||
(Being entry recorded ) |