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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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At the beginning of the current year, Andy Company has equipment that originally cost $50,000, has $35,000 accumulated depreciation, and is being depreciated at $5,000 per year. Andy sells this equipment for $12,000 at the end of the current year. Prepare journal entries to record both the current year’s depreciation and the disposal of the equipment.

To determine

Prepare journal entries of Company A for the given transaction.

Explanation

Prepare journal entries of Company A for the given transaction:

DateAccount Title & ExplanationDebit ($)Credit($)
December 31, 2019Depreciation expense 5,000 
     Accumulated depreciation-Trucks 5,000
 (To record the depreciation expense)

Table (1)

  • Depreciation expense is a component of stockholder’s equity. It decreases the value of stockholder’s equity by $5,000. Therefore, debit depreciation expense account with $5,000.
  • Accumulated depreciation is a contra asset, and it decreases the value of asset by $5,000. Therefore, credit accumulated depreciation account with $$5,000.

Prepare journal entries to record the disposal of equipment:

DateAccount Title and ExplanationPost Ref

Debit

($)

Credit ($)
 Cash 12,000 
 Accumulated Depreciation – Machinery (1) 40,000 
     Gain from sale of equipment (2)  2,000
     Equipment   50,000
 (To record the gain from disposal of equipment)   

Table (2)

  • Cash is an asset, and it increases the value of assets by $12,000. Therefore, debit the cash account with $12,000.
  • Accumulated depreciation is a contra asset, and it increases the asset by $40,000...

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