On January 1, Delivery, Inc. purchased a truck for $67,500 with a $6,000 salvage value and...

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.

Solutions

Expert Solution

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 )

ekkarill92 answered 1 year ago

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