Abbott Landscaping purchased a tractor at a cost of $42,000 and sold it three years later for $21,600. Abbott recorded depreciation using the straight-line method, a five-year service life, and a $3,000 residual value. Tractors are included in the Equipment account.
1. Record the sale of equipment. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)
2. Assume the tractor was sold for $13,600 instead of $21,600. Record the sale of equipment. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Question

23-03-2020
Business

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Abbott Landscaping purchased a tractor at a cost of $42,000 and sold it three years later for $21,600. Abbott recorded depreciation using the straight-line method, a five-year service life, and a $3,000 residual value. Tractors are included in the Equipment account.
1. Record the sale of equipment. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)
2. Assume the tractor was sold for $13,600 instead of $21,600. Record the sale of equipment. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

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Shahzaibfaraz Shahzaibfaraz · Answer 1 · 2020-03-26T03:35:28+01:00

Answer:

1. Cash 21600 Dr

Provision for Depreciation- Equipment 23400 Dr

Equipment Account 42000 Cr

Gain on Disposal-Equipment 3000 Cr

2. Cash 13600 Dr

Provision for Depreciation- Equipment 23400 Dr

Loss on Disposal-Equipment 5000 Dr

Equipment Account 42000 Cr

Explanation:

1. The depreciation is charged on tractor on a straight line basis for 5 year useful life estimation.

The yearly depreciation expense and transfer to provision for depreciation account is,

Depreciation-yearly = (42000 - 3000) / 5 = 7800

The equipment is sold after 3 years thus provision of 3 years exists.

Total provision for dep after 3 years = 7800 * 3 = 23400

The NBV after 3 years = 42000 - 23400 = 18600

The gain on disposal = 21600 - 18600 = 3000

2. The selling price now is 13600 but other factors remain constant.

The loss on disposal = 13600 - 18600 = 5000

Tundexi Tundexi · Answer 2 · 2022-03-29T14:49:15+02:00

1. What is the yearly depreciation?

= ($42000 - $3000) / 5

= $7800

Given equipment is sold after 3 years, the total provision for depreciation after 3 years = $7800 * 3 = $23400

Net Book value after 3 years = $42000 - $23400

Net Book value after 3 years = $18600

Gain on disposal = $21600 - $18600

Gain on = 3000

Journal entry

Cash $21600 Debit

Provision for Depreciation- Equipment $23400 Debit

Equipment Account $42000 Crdit

Gain on Disposal-Equipment $3000 Credit

2. The loss on disposal = $13600 - $18600

The loss on disposal = 5000

Journal entry

Cash $13600 Debit

Provision for Depreciation- Equipment $23400 Debit

Loss on Disposal-Equipment $5000 Debit

Equipment Account $42000 Credit