Answer:
The journal entry to record the sale will be:
Debit Cash (sales proceed) $20,000
Debit Loss on disposal $2,500
Debit Accumulated depreciation $22,500
Credit Equipment cost $45,000
<em>(To record disposal of an equipment)</em>
Explanation:
Straight-line depreciation method is allocating the cost of an asset on a uniform basis over its useful life. The formula for this method of depreciation is: (Cost - Salvage value) / Useful life
Depreciation = ($45,000 - $5,000) / 8 years
Depreciation = $5,000 yearly
On July 1, Year 5, acummulated depreciation will be 4.5 years x $5,000 = $22,500.
Net book value of the equipment on July 1, year 5, is $22,500 ($45,000 - $22,500). When compared with the sales proceed, loss on disposal will be $2,500 ($22,500 - $20,000). The required journals were as provided above.
