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densk [106]
2 years ago
15

A company purchased a computer system on January 2, 2018 for $1,600,000. The company used the straight-line depreciation method

with an estimated useful life of 6 years and a residual value of $130,000. The company prepares financial statements at December 31 Assume the company decides to sell the computer system on July 1, 2020 for $1,000,000 Which of the following statements about the journal entry (or entries) required on July 1 is not correct?
A) The Equipment asset account must be credited for $1,600,000 to record the sale.
B) The loss on the sale is $12,500.
C) Accumulated Depreciation is debited for $612,500 in the entry to record the sale.
D) The depreciation expense must be recorded for 6 months, January 1 to July 1.
Business
1 answer:
Anna007 [38]2 years ago
4 0

Answer:

B. Loss on sale is $12,500

Explanation:

The equipment purchase on 1st January 2018. The equipment is sold of 1st July 2020. The duration for accumulated depreciation is 2.5 years. Using straight line method the depreciation will be:

[ 1,600,000 - 130,000 ] / 8 years  * 2.5 years = 612,500

The book value for the equipment is 1,600,000 - 612,500 = 987,500

The equipment is sold for 1,000,000

There is gain on disposal of 12,500.

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STOCKHOLDERS EQUITY

                                                  Common               Retained      Stockholders

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Issuance of common stock           43.000                                      43.000

Net income for the period                                        33.000           33.000

Cash Dividens                                                           (10.300)          (10.300)

Ending balances December 31   196.000              75.700 271.700

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Explanation:

STOCKHOLDERS EQUITY

                                                  Common               Retained      Stockholders

                                                      stock                 earnings        equity

Beginning balance January 1      153.000              53.000          206.000

Issuance of common stock           43.000                                      43.000

Net income for the period                                        33.000           33.000

Cash Dividens                                                           (10.300)          (10.300)

Ending balances December 31   196.000              75.700 271.700

BALANCE SHEET

Cash                    52.900

Supplies               11.200

Prepaid Rent       25.500

Land                   215.000

Total Assets      304.600

Account payable    8.100

Utilities payable      3.000

Salaries payable     3.800

Notes payable      18.000

Total liabilities      32.900        

         

Common stock      196.000

Retained earnigs    75.700

Total stockholders 271.700

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