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Garcia Co. owns equipment that cost $84,400, with accumulated depreciation of $44,600. Garcia sells the equipment for cash.

Required:
Record the sale of the equipment under the following three separate cases assuming Garcia sells the equipment for:

a. $52,700 cash
b. $39,800 cash
c. $34,700 cash.

Respuesta :

Shahzaibfaraz

Answer:

a.

Accumulated depreciation                   44600 Dr

Cash                                                         52700 Dr

                 Equipment                                 84400 Cr

                 Gain on disposal                       12900 Cr

b.

Accumulated depreciation                   44600 Dr

Cash                                                         39800 Dr

                 Equipment                                 84400 Cr

c.

Accumulated depreciation                   44600 Dr

Cash                                                         34700 Dr

Loss on disposal                                     5100 Dr

                 Equipment                                 84400 Cr

Explanation:

First we need to determine the net book value of the equipment at the time of sale. The net book value is the net value after deducting accumulated depreciation from the cost of the asset.

Net Book value = Cost - Accumulated depreciation

Net Book Value = 84400 - 44600     = $39800

  • If the asset is sold for more than its net book value, there is gain on disposal.
  • If it is sold for exactly its net book value, there is no gain or no loss on disposal.
  • If it is sold for less than its net book value, there is loss on disposal.

a.

Gain on disposal = 52700 - 39800   = $12900

b.

No gain or no loss as Net Book Value of the asset equals the amount of cash it is sold for.

c.

Loss on disposal = 34700 - 39800   =  - $5100

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