Question

Infinity Corporation purchased equipment with a 10-year useful life and zero residual value for $10,000. At the end of the fifth year, the equipment is sold for $6,000. The entry to record this sale will include? Assume the straight-line depreciation method is used.Select all that apply.a. a credit to Loss for $1,000b. a credit to Gain for $6,000c. a debit to Equipment for $6,000d. a credit to Equipment for $10,000e. a debit to Cash for $6,000f. a debit to Accumulated Depreciation for $5,000g. a credit to Gain for $1,000

Answer 1

Answer:

D. a credit to Equipment for $10,000

E. a debit to Cash for $6,000

F. a debit to Accumulated Depreciation for $5,000

G. a credit to Gain for $1,000

Explanation:

Calculation:

The cost of equipment = $10,000

Useful Life = 10-year

As the company uses straight-line depreciation method, the formula to calculate the depreciation is as follows:

Straight-line depreciation = $\frac{Total Cost - Salvage Value}{Useful Life}$

Straight-line depreciation = $\frac{10,000 - 0}{10}$

Straight-line depreciation = $1,000

At the end of the fifth year, the accumulated depreciation would be,

$1,000 x 5 = $5,000

Therefore, the book value of the equipment = Initial cost - Accumulated depreciation

= $(10,000 - 5,000) = $5,000

Gain from the sale of equipment = Sale of equipment - Book value

Gain = $(6,000 - 5,000) = $1,000

Therefore,

The journal entry should be -

Cash                                                        Debit         6,000          

Accumulated Depreciation                    Debit         5,000

                          Gain from the sale of equipment     Credit    1,000

                          Equipment                                         Credit   10,000

Therefore, Option D - G are correct.