Question

Abbott Landscaping purchased a tractor at a cost of $32,000 and sold it three years later for $16,000. Abbott recorded depreciation using the straight-line method, a five-year service life, and a $2,000 residual value. Tractors are included in the Equipment account.Record the sale

Answer 1

Answer:

Record the sale    

Dr Cash    $16,000  Debit  

Dr Accumulated Depr   $18,000  Debit  

Cr Equipment    $32,000  Credit  

Cr Gain    $2,000  Credit  

DEBIT (Cash + Acc Dep)   $34.000  Debit  

CREDIT (Equip.+Gain)   $34.000  Credit

Explanation:

Equipment    $32.000  Debit  

Equipment Value for Depreciation   $30.000  Because $2,000 is the residual value that does not compute for depreciation  

Accumulated Depr   $18.000  Credit  

The accumulated Depreciation is calculated by dividing the equipment value of $30,000 by 5 years of service life.    

As the equipment only was used 3 years, the accumulated depreciation only reflect $6,000*3 = $18,000    

Record the sale    

Dr Cash    $16.000  Debit  

Dr Accumulated Depr   $18.000  Debit  

Cr Equipment    $32.000  Credit  

Cr Gain    $2.000  Credit  

   

DEBIT (Cash + Acc Dep)   $34.000  Debit  

CREDIT (Equip.+Gain)   $34.000  Credit  

As the residual value of the equipment it's $14,000 ( $32,000 - $18,000) and the sale was by $16,000, it means a gain of $2,000