Question

Prine Company purchased equipment on January ​1, 2018​, for $ 25 comma 000. Suppose Prine Company sold the equipment for $ 3 comma 000 on December 31 comma 2019. Accumulated Depreciation as of December ​31, 2019​, was $ 16 comma 000. Journalize the sale of the​ equipment, assuming​ straight-line depreciation was used.
Required:
a. Calculate any gain or loss on the sale of the equipment.
b. Journalize the sale of the equipment

Answer 1

Answer:

a. The company recognizes loss on the sale of the equipment $6,000

b. The entry to record the sale of the equipment:

Debit Cash $3,000

Debit Accumulated depreciation account $16,000

Debit Loss on sale equipment  $6,000

Credit Equipment $25,000

Explanation:

To recognize gain or loss on the sale of the equipment:

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 December ​31, 2019​, the carrying amount of the asset = $25,000 - $16,000 = $9,000

Sale price - Carrying amount of the asset = $3,000 - $9,000 = -$6,000

=> The company recognizes loss on the sale of the equipment $6,000

b. The entry to record the sale should be made:  

Debit Cash $3,000

Debit Accumulated depreciation account $16,000

Debit Loss on sale equipment  $6,000

Credit Equipment $25,000