Answer:
The question is incomplete. The completed question is as follows:
On December 31, Strike Company has decided to discard one of its batting cages. The equipment had an initial cost of $310,000 and has accumulated depreciation of $260,000. Depreciation has been recorded up to the end of the year. Which of the following will be included in the entry to record the disposal?
a. Gain on Disposal of Asset Cr., $50,000
b. Loss on Disposal of Asset Dr., $260,000
c. Accumulated Depreciation Dr., $310,000
d. Equipment Cr., $310,000
The answer is: d
Explanation:
When an asset is bought, it is recorded at the purchase price or fair value of the asset at purchase date. The entire cost of the asset is not recognised as an expense. Rather, the cost is reallocated over the useful life of the asset. From acquisition date to disposal date, the asset depreciates (reduces) in value. This loss in value owing to the use of the asset is recorded as an expense even though the cash outflow occurred at acquisition. This is done so as to comply with the matching principle in accounting (revenues earned are recorded in the same period as the expenses were incurred). At the end of the asset's useful life, the accumulated depreciation is closed off against the associated asset account and the asset account is then closed off so as to recognise a loss or gain on disposal. Strike is discarding the cages which still have a book value of $50, 000 ($310, 000 - $260, 000) therefore they would make a loss equivalent to that amount. The journal entries for Strike Company's disposal of the batting cages (BC) would be as follows:
Debit Accumulated Depreciation- BC Equipment $260, 000
Credit BC Equipment $260, 000
Debit Loss on Disposal $50, 000
Credit BC Equipment (book value at disposal) $50, 000
These two entries can be done as a single entry:
Debit Accumulated Depreciation- BC Equipment $260, 000
Debit Loss on Disposal $50, 000
Credit BC Equipment $310, 000
