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9QS

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Found in: Page 387

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Question: Garcia Co. owns equipment that cost $76,800, with accumulated depreciation of$40,800. Garcia sells the equipment for cash. Record the sale of the equipment under the following three separate cases assuming Garcia sells the equipment for (1) $47,000 cash, (2)$36,000 cash, and (3) $31,000 cash 1. If the equipment is sold for$47,000 cash, then there will be a profit of $11,000. 2. If the equipment is sold for$36,000 cash, there will be no profit or gain.
3. If the equipment is sold for $31,000 cash, then there will be a loss of$ 5,000.
See the step by step solution

Step 1: Meaning of Depreciation

Depreciation is the overall reduction in the book value of the asset because of its regular use or wear and tear.

Step 4: (3) Sale for $31,000 Sale below Book Value: If Garcia Co. receives an amount below the equipment’s book value, a loss on disposal occurs. The entry is  Cash$31,000 Loss on Disposal of Equipment $5,000 Accumulated depreciation$40,800 Equipment $76,800 (Record sale of equipment for a loss of$5,000.)

Working note:

Calculation of book value