Question

During the current year, Vann County’s motor pool internal service fund sold two vehicles for $5,000. The vehicles had a cost of $6,000 and a carrying value of $4,000. How should Vann County’s motor pool internal service fund report this transaction in its fund financial statements?

Answer 1

Answer:

Gain of $1000

Explanation:

Looking at the question, it is evident that the company is using the accrual basis of accounting, hence the reporting should be done simply  by showing a revenue of $5000(Proceeds) minus the carrying value given i.e. $4000.

Hence a gain of $1000.

Hope this helps you. Good Luck.

Answer 2

Answer:

Income Statement

Non- Operating Income Section

Increase Profit On Sale of Non-Current assets with  $ 1000

Statement of Financial Position

Non-Current Assets Section

Decrease Vehicle Costs with $6,000

Decrease Accumulated Depreciation on Vehicles with $2,000

Current Assets Section

Increase Cash Balances with $5,000

Explanation:

Vann County has just disposed of its Vehicles and the transaction must be treated as a disposal of a non-current Asset.

The Journal entry to Record the disposal is shown as follows:

Cash $5,000 (debit)

Accumulated Depreciation $2,000 (debit)

Profit On Sale of Vehicles $ 1000 (credit)

Vehicles $6,000 (credit)

Thus a Profit on Disposal of $1,000 has been made