Question

Prepare journal entries to record these transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) (a) Echo Company retires its delivery equipment, which cost $41,000. Accumulated depreciation is also $41,000 on this delivery equipment. No salvage value is received. (b) Assume the same information as in part (a), except that accumulated depreciation for the equipment is $37,200 instead of 41,000.

Answer 1

Answer:

The journals to be recorded are as follows:

(a) Debit Accumulated depreciation                    $41,000

    Credit Equipment                                             $41,000

(b) Debit Accumulated depreciation                    $37,200

    Debit Loss on disposal [$41,000 - $37,200]    $3,800

    Credit Equipment                                              $41,000

(To recognize the disposals of the company's equipment)

Explanation:

Retiring company's asset otherwise means to dispose of the assets. Disposal of an asset can be as a result of being fully depreciated, wear and tear, obsolescence, new technological improvement, idleness of the assets, etc.

(a) In part (a) of the question, the asset was fully depreciated without salvage value, so there is zero gain or loss on disposal. The relevant accounting entries are as recorded above.

(b) Here, the accumulated depreciation was less than the cost, meaning the asset was not fully depreciated, which can be as a result of any of the reasons cited above. The company therefore realized a loss of $3,800 upon disposal.