Question

Sale of Plant Asset

Lone Pine Company has a machine that originally cost $60,000. Depreciation has been recorded for four years using the straight-line method, with a $5,000 estimated salvage value at the end of an expected ten-year life. After recording depreciation at the end of four years, Lone Pine sells the machine. Prepare the journal entry to record the machine’s sale for (Round to the nearest dollar):

a.	$39,000	cash
b.	$38,000	cash
c.	$28,000	cash

Answer 1

Annual depreciation = (Cost price - Salvage value)/Useful life

= (60,000 - 5,000)/10

= $5,500

Accumulated depreciation for 4 year = 5,500 x 4

= $22,000

Book value of equipment after 4 year = Cost price - Accumulated depreciation

= 60,000 - 22,000

= $38,000

a) Gain on disposed = sale price of equipment - Book value of equipment

= 39,000- 38,000

= $1,000

Journal

Account Title and Explanation	Debit	Credit
Cash	39,000
Accumulated depreciation - equipment	22,000
Equipment		60,000
Gain on disposed		1,000

b) Since the equipment was sold for $38,000 i.e. at it book value, hence there was no gain or loss on the disposed of equipment.

Journal

Account Title and Explanation	Debit	Credit
Cash	38,000
Accumulated depreciation - equipment	22,000
Equipment		60,000

c)Loss on disposal = Book value of equipment - Sale price of equipment

= 38,000 - 28,000

= $10,000

journal

Account Title and Explanation	Debit	Credit
Cash	28,000
Accumulated depreciation - equipment	22,000
Loss on disposal	10,000
Equipment		60,000

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