Question

Equipment that had been acquired several years ago by a special revenue fund at a cost of $40,000 was sold for $15,000 cash. Accumulated depreciation of $30,000 existed at the time of the sale. The journal entry to be made in the special revenue fund will include:________. A) A debit to Cash for $15,000. B) A debit to Accumulated Depreciation for $30,000. C) A credit to Equipment for $40,000. D) A credit to Other Financing Sources for $5,000

Answer 1

Answer:

The journal entry to be made in the special revenue fund will include A credit to Equipment for $40,000

Explanation:

On the Purchase of Equipment, funds are obtained from the Special Revenue Fund. Thus this Reserve is decreasing while the Equipment account will be increasing.

The full entry for this transaction is :

Equipment $40,000 (debit)

Special Revenue Fund $40,000 (credit)

Answer 2

Answer:

D) A credit to Other Financing Sources for $5,000

Explanation:

Since cash is received, you must record the $15,000 in the cash account. The accumulated depreciation account must be closed, and since accumulated depreciation has a credit balance, it is closed by debiting it. Equipment is an asset account with a debit balance and it also must be closed, ans you do that with a credit.

Other financing sources is used to record non-revenue items such as proceeds from loans, leases, sales of bonds or notes, insurance  recoveries, etc., not the sale of assets.