Question

"Gaston owns" equipment that cost $28,500 with accumulated depreciation of $5,700. Gaston asks $22,500 for the equipment but sells the equipment for $20,500. Prepare journal entry to record the disposal of the equipment.

Answer 1

Answer:

Dr. Cash                                      $20,500

Dr. Accumulated Depreciation $5,700

Dr. Loss on disposal                  $2.300

Cr. Cost                                       $28,500

Explanation:

The assets is sold for $20,500, which have cost of $28,500 and accumulated depreciation of $5,700. At the time of disposal $20,500 cash is received which is debited in the cash account. Accumulated Depreciation and cost is adjusted against it. The loss of $2,300 is incurred on the disposal of equipment.

Answer 2

Answer:

To record the disposal,

Debit Disposal/Other income account $22,800

Credit Fixed Asset account $22,800

Being entries to derecognize equipment disposed

Debit Cash account $20,500

Credit Disposal/Other Income account $20,500

Being entries to record the sales proceed on disposal of equipment

Explanation:

The carrying amount or net book value of an asset is the difference betwen the historical cost of the asset and the accumulated depreciation. When an asset is disposed, this carrying amount has to be derecognized and the proceed from the sale recognized. The difference between these two amounts is the gain/loss on disposal.

Net book value of asset

= $28,500 - $5,700

= $22,800

Sales proceed = $20,500