Question

A company sells a plant asset that originally cost $180,000 for $60,000 on December 31, 2007. The accumulated depreciation account had a balance of $90,000 after the current year's depreciation of $15,000 had been recorded. The company should recognize aa. $30,000 loss on disposal.b. $30,000 gain on disposal.c. $60,000 loss on disposal.d. $60,000 gain on disposal.

Answer 1

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