.. A company purchased and installed equipment on January 1, 2013 at a total cos

Question

.. A company purchased and installed equipment on January 1, 2013 at a total cost of $76,000. Straight-line depreciation was calculated based on the assumption of a five-year life and $6,000 salvage value. The equipment was disposed of on July 1, 2016. Depreciation has been recorded for the equipment up to December 31,2015. Required: the general journal entry to update depreciation to July 1, 2016 1. Prepare 2. Prepare the general journal entry to record the disposal of the equipment on July 1, 2016 under each of the following three independent situations: (a) The equipment was sold for $18,000 cash. b) The equipment was sold for $32,000 cash. (c) The equipment was totally destroyed in a fire and the insurance company settled the claim for $25,000 cash. Debit Credit

Explanation / Answer

Answer

Headings

Debit

Amount in $

Credit

Amount in $

1.

Depreciation A/c

7000

     To Accumulated Depreciation A/c

7000

(Depreciation recorded for half year)

2. (a)

Cash A/c

18000

Loss on sale of equipment A/c

9000

Accumulated Depreciation A/c

49000

      To Equipment A/c

76000

(Loss on sale of equipment recorded.)

2. (b)

Cash A/c

32000

Accumulated Depreciation A/c

49000

      To Equipment A/c

76000

      To Gain on sale of equipment A/c

5000

(Gain on sale of equipment recorded.)

2.(c)

Cash A/c

25000

Loss due to fire A/c

2000

Accumulated Depreciation A/c

49000

      To Equipment A/c

76000

(Loss due to fire reimbursed by Insurance company to the tune of $25000.)

Answer

Headings

Debit

Amount in $

Credit

Amount in $

1.

Depreciation A/c

7000

     To Accumulated Depreciation A/c

7000

(Depreciation recorded for half year)

2. (a)

Cash A/c

18000

Loss on sale of equipment A/c

9000

Accumulated Depreciation A/c

49000

      To Equipment A/c

76000

(Loss on sale of equipment recorded.)

2. (b)

Cash A/c

32000

Accumulated Depreciation A/c

49000

      To Equipment A/c

76000

      To Gain on sale of equipment A/c

5000

(Gain on sale of equipment recorded.)

2.(c)

Cash A/c

25000

Loss due to fire A/c

2000

Accumulated Depreciation A/c

49000

      To Equipment A/c

76000

(Loss due to fire reimbursed by Insurance company to the tune of $25000.)

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