Question

Plant equipment originally costing $32,400, on which $21,600 of up-to-date depreciation has been accumulated, was sold for $8,100.

a.  Prepare the journal entry to record the sale.

b.  Prepare the entry to record the sale of the equipment if $90 of removal costs were incurred to allow the equipment to be moved.

Answer 1

Working note 1

Calculation of Profit (Loss) on sale of Asset
Cost of Plant Equipment	$ 32,400.00
Less: Accumulated Depreciation	$ 21,600.00
Book Value of Plant Equipment	$ 10,800.00
Sale Consideration	$    8,100.00
Loss on sale	$ (2,700.00)

Requirement a)) Journal entry

General Journal	Debit	Credit
Cash	$    8,100.00
Loss on sale of Equipment	$    2,700.00
Accumulated depreciation-Equipment	$ 21,600.00
Equipment		$ 32,400.00
(Equipment sold at a loss)

When an asset is sold its accumulated depreciation is debited with total balance of Accumulated depreciation of the asset sold. Equipment is credited with its cost. Book value is calculated to ascertain whether asset is sold at loss or profit. If asset is sold for more than its book value, difference is treated as profit otherwise loss.

Requirement b))

General Journal	Debit	Credit
Cash	$      8,010.00
Loss on sale of Equipment	$      2,790.00
Accumulated depreciation-Equipment	$   21,600.00
Equipment		$ 32,400.00
(Equipment sold at a loss)

When asset is sold and some extra cost is incurred with selling. Net cash received on sale is recorded. Loss on sale is increased by the amount of that additional cost of disposal.

Net cash received = $ 8100-90= $8010

Loss on sale= $2700+$90= $2790