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ellado Industries, a calendar-year company, purchased equipment on January 2, 2024, for $112,000. The equipment was intended to be used for seven years and is depreciated using the straight-line method with no expected residual value. On July 1, 2028, Tellado sells the equipment for $43,000. Journalize the entry to record the sale.Select answer from the options belowdebit Cash $43,000; debit Accumulated Depreciation - Equipment $80,000; credit Equipment $112,000; credit Gain on Disposal $11,000debit Cash $43,000; debit Accumulated Depreciation - Equipment $72,000; credit Equipment $112,000; credit Gain on Disposal $3,000debit Cash $43,000; debit Accumulated Depreciation - Equipment $64,000; debit Loss on Disposal $5,000; credit Equipment $112,000debit Cash $43,000; debit Accumulated Depreciation - Equipment $69,000; credit Equipment $112,000Save for LaterSubmit Answer

Question

ellado Industries, a calendar-year company, purchased equipment on January 2, 2024, for 112,000.Theequipmentwasintendedtobeusedforsevenyearsandisdepreciatedusingthestraight−linemethodwithnoexpectedresidualvalue.OnJuly1,2028,Telladosellstheequipmentfor112,000. The equipment was intended to be used for seven years and is depreciated using the straight-line method with no expected residual value. On July 1, 2028, Tellado sells the equipment for 43,000. Journalize the entry to record the sale.Select answer from the options belowdebit Cash 43,000;debitAccumulatedDepreciation−Equipment43,000; debit Accumulated Depreciation - Equipment 80,000; credit Equipment 112,000;creditGainonDisposal112,000; credit Gain on Disposal 11,000debit Cash 43,000;debitAccumulatedDepreciation−Equipment43,000; debit Accumulated Depreciation - Equipment 72,000; credit Equipment 112,000;creditGainonDisposal112,000; credit Gain on Disposal 3,000debit Cash 43,000;debitAccumulatedDepreciation−Equipment43,000; debit Accumulated Depreciation - Equipment 64,000; debit Loss on Disposal 5,000;creditEquipment5,000; credit Equipment 112,000debit Cash 43,000;debitAccumulatedDepreciation−Equipment43,000; debit Accumulated Depreciation - Equipment 69,000; credit Equipment $112,000Save for LaterSubmit Answer

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Solution

First, let's calculate the accumulated depreciation until the date of the sale. The equipment is depreciated over 7 years using the straight-line method, which means the annual depreciation is 112,000/7=112,000 / 7 = 16,000.

Since the equipment was sold on July 1, 2028, it was used for 4.5 years (from January 2, 2024, to July 1, 2028). Therefore, the accumulated depreciation is 16,000∗4.5=16,000 * 4.5 = 72,000.

Next, let's calculate the book value of the equipment at the time of the sale. The book value is the original cost minus the accumulated depreciation, which is 112,000−112,000 - 72,000 = $40,000.

Since the equipment was sold for 43,000,whichismorethanitsbookvalue,thereisagainonthedisposal.Thegainisthesellingpriceminusthebookvalue,whichis43,000, which is more than its book value, there is a gain on the disposal. The gain is the selling price minus the book value, which is 43,000 - 40,000=40,000 = 3,000.

Therefore, the journal entry to record the sale is:

  • Debit Cash $43,000
  • Debit Accumulated Depreciation - Equipment $72,000
  • Credit Equipment $112,000
  • Credit Gain on Disposal $3,000

So, the correct answer is "debit Cash 43,000;debitAccumulatedDepreciation−Equipment43,000; debit Accumulated Depreciation - Equipment 72,000; credit Equipment 112,000;creditGainonDisposal112,000; credit Gain on Disposal 3,000".

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