Question

Melanie works for a company that wants to sell their truck today. Melanie is confused about how to calculate gain or loss on the sale of a business vehicle. Her company got an offer to buy their business truck for $5,000. The equipment is on their books at $35,000 with related accumulated depreciation at 29,000. The company still needs to record depreciation on this equipment for the period just expired. Depreciation expense will be recorded at $1,500.

Help Melanie give her company the correct answer to the following questions.

9a) If the company sells the truck for $5,000 now, what will be the gain or loss on this sale? Provide the journal entry. Why is this a gain or a loss (what determines whether there is a gain or loss)?

9b) If the circumstances change and the company has a total of $28,000 in accumulated depreciation, what would be the gain or loss on the sale assuming they are receiving the same proceeds for this sale? Provide the journal entry. Why is this a gain or a loss?

Answer 1

9a)	Journal entry
	accounting titles & Explanations					Debit	Credit
	Depreciation expense					1,500
	Accumulated depreciation						1,500
	(Depreciation for current year)
	Cash					5,000
	Accumulated depreciation			(29000+1500)		30,500
	Gain on disposal						500
	Truck						35,000
	gain on sale $500
	if the bbok value of the asset (that is orginal cost - accumulated depreciaion 35000-30500=4,500)
	is less than the cash received there is said to be gain .on the other hand cash received is less than
	the book value there is said to be loss on sale)
9b)	Journal entry
	accounting titles & Explanations					Debit	Credit
	Depreciation expense					1,500
	Accumulated depreciation						1,500
	(Depreciation for current year)
	Cash					5,000
	Accumulated depreciation			(28000+1500)		29,500
	loss on disposal					500
	Truck						35,000
	loss on sale $500
	since the book value of $5,500 is more than the cash received there is said
	to be loss on sale