Answer:
a. $30,000 loss on disposal
Explanation:
Companies frequently sell plant assets to dispose them. To recognize gain or loss on disposal:
First, the company calculates the carrying amount of the asset by using the original cost of the asset, minus all accumulated depreciation and any accumulated impairment charges.
Then, subtract this carrying amount from the sale price of the asset. If the remainder is positive, it is a gain and if the remainder is negative, it is a loss
On 31 December, 2007, the carrying amount of the asset = $180,000 - $90,000 = $90,000
Sale price - Carrying amount of the asset = $60,000 - $90,000 = -$30,000
=> The company recognizes loss on disposal $30,000
The entry should be made:
Debit Cash $60,000
Debit Accumulated depreciation account $90,000
Debit Loss on asset disposal $30,000
Credit Plant asset $180,000
