Question

Infinity Corporation purchased equipment with a 10-year useful life and zero residual value for $10,000. At the end of the fifth year, the equipment was destroyed in a fire. If the equipment is not insured, the entry to record the retirement of this asset will include _______. Assume the straight-line depreciation method is used. (Select all that apply.)

Answer 1

Answer:

Dr Accumulate depreciation   $5,000

Dr Loss on asset retirement      $5,000

  Cr Equiqment                         $10,000

(to record the Equiment retirement at the end of fifth year of its 10-year useful life)

Explanation:

The annual depreciation is calculated as: (10,000 - 0) / 10 = $1,000

As it is at the end of fifth-year, the accumulated depreciation associated with the Equiment will be : 5 x 1,000 = $5,000

As a Equiment is retired without any recovery, the booked value of the Equiment is "written-off" by a Credit entry of $10,000; the associated accumulated depreciation is also "removed" from the Balance Sheet by a Debit entry of $5,000; which all leaves us the Loss on Asset Retirement at $5,000 record by a Debit entry.