Assume that Gonzalez Company purchased an asset on January 1, 2014, for $60,000. The asset had an estimated life of six years and an estimated residual value of $6,000. The company used the straight-line method to depreciate the asset. On July 1, 2016, the asset was sold for $40,000. Make the journal entry to record depreciation for 2016. Record all transactions necessary for the sale of the asset. How should the gain or loss on the sale of the asset be presented on the income statement?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Exercise 8-6: Assume that Gonzalez Company purchased an asset on January 1, 2014, for $60,000. The asset had an estimated life of six years and an estimated residual value of $6,000. The company used the straight-line method to
- Make the
journal entry to record depreciation for 2016. Record all transactions necessary for the sale of the asset. - How should the gain or loss on the sale of the asset be presented on the income statement?
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