Answer:
Carla Vista Company
Journal Entries to record sale of the equipment in four independent situations:
(a) Sold for $40,000 on January 1, 2022
:
Book value of equipment = cost minus accumulated depreciation to date:
= $74,000 - 36,000 = $38,000; profit on sale = $2,000
Debit Sale of Equipment $74,000
Credit Equipment $74,000
To close the equipment account.
Debit Accumulated Depreciation $36,000
Credit Sale of Equipment $36,000
To close the accumulated depreciation account.
Debit Cash Account $40,000
Credit Sale of Equipment $40,000
To record the cash proceeds from sale of equipment
Debit Sale of Equipment $2,000
Credit Gain on Sale of Equipment $2,000
To record the gain from the sale of equipment.
(b) Sold for $40,000 on May 1, 2022
:
Book value of equipment = cost minus accumulated depreciation to date:
= $74,000 - 40,000 = $34,000; profit on sale = $6,000
Debit Sale of Equipment $74,000
Credit Equipment $74,000
To close the equipment account.
Debit Accumulated Depreciation $40,000
Credit Sale of Equipment $40,000
To close the accumulated depreciation account.
Debit Cash Account $40,000
Credit Sale of Equipment $40,000
To record the cash proceeds from the sale of equipment
Debit Sale of Equipment $6,000
Credit Gain on Sale of Equipment $6,000
To record the gain from the sale of equipment.
(c) Sold for $23,000 on January 1, 2022:
Book value of equipment = cost minus accumulated depreciation to date:
= $74,000 - 36,000 = $38,000; loss on sale = $15,000
Debit Sale of Equipment $74,000
Credit Equipment $74,000
To close the equipment account.
Debit Accumulated Depreciation $36,000
Credit Sale of Equipment $36,000
To close the accumulated depreciation account.
Debit Cash Account $23,000
Credit Sale of Equipment $23,000
To record the cash proceeds from the sale of equipment
Debit Loss on Sale of Equipment $15,000
Credit Sale of Equipment $15,000
To record the loss from the sale of equipment.
(d) Sold for $23,000 on October 1, 2022:
Book value of equipment = cost minus accumulated depreciation to date:
= $74,000 - 45,000 = $29,000; loss on sale = $6,000
Debit Sale of Equipment $74,000
Credit Equipment $74,000
To close the equipment account.
Debit Accumulated Depreciation $45,000
Credit Sale of Equipment $45,000
To close the accumulated depreciation account.
Debit Cash Account $23,000
Credit Sale of Equipment $23,000
To record the cash proceeds from the sale of equipment
Debit Loss on Sale of Equipment $6,000
Credit Sale of Equipment $6,000
To record the loss from the sale of equipment.
Explanation:
a) Journal entries come handy at the initial recording of business transactions. They show the accounts to be debited and ones to be credited in the general ledger.
b) Depreciation charge for each year = $12,000 ($74,000 - $14,000)/5
c) Accumulated Depreciation as at:
Dec. 31, 2019 = $12,000
Dec. 31, 2020 = $24,000
Dec. 31, 2021 = $36,000
May 1, 2022 = $40,000 (36,000 + (12,000/12 x 4))
Oct. 1, 2022 = $45,000 (36,000 + (12,000/12 x 9))
