Question

Sale of Plant Asset

Shannon Company has a equipment that originally cost $68,000. Depreciation has been recorded for six years using the straight-line method, with a $9,000 estimated salvage value at the end of an expected eight-year life. After recording depreciation at the end of six years, Shannon sells the equipment. Prepare the journal entry to record the equipment’s sale for (Round to the nearest dollar):

a.	$30,000	cash
b.	$23,750	cash
c.	$21,000	cash

General Journal
Date	Description	Debit	Credit
a.	Cash	Answer	Answer
	Answer

	Answer	Answer
	Equipment	Answer	Answer
	Answer

Answer	Answer
	To record sale of equipment.
b.	Cash	Answer	Answer
	Answer

Answer	Answer
	Answer

Answer	Answer
	To record sale of equipment.
c.	Cash	Answer	Answer
	Answer

Answer	Answer
	Accumulated Depreciation - Equipment	Answer	Answer
	Answer

Answer	Answer
	To record sale of equipment.

Answer 1

Cost of the Equipment = $ 68,000

Salvage value = $ 9000

Useful life = 8 years

Depreciation = (Cost of equipment – salvage value ) / useful life

                        = ($ 68,000 - $ 9000)/ 8 years

                         = $ 7375 per year

Book value of the asset at the end of 6th year = Equipment cost – Accumulated depreciation for 6 yrs

                                                                                        = $ 68,000 – ($ 7375*6 years)

                                                                                        = $ 68,000 - $ 44,250

                                                                                        = $ 23,750

a ) If asset is sold at $ 30,000 for cash then journal entry would be

Date	Description	Debit	Credit
At the end of the year	Cash account	$ 30,000
To Equipment account		$ 23,750
To Profit and loss account ($ 30,000 - $ 23,750) (Being sale of equipment at profit for cash		$ 6,250

B) If asset is sold at $ 23,750 for cash then journal entry would be

Date	Description	Debit	Credit
At the end of the year	Cash account	$ 23,750
To Equipment account (Being sale of equipment for cash)		$ 23,750

C) If asset is sold at $ 21,000 for cash then journal entry would be

Date	Description	Debit	Credit
At the end of the year	Cash account	$ 21,000
Profit and loss account ($23,750- $ 21,000)	$ 2,750
To Equipment account    (Being sale of equipment at loss for cash)		$ 23,750