Question

Strawberry Fields purchased a tractor at a cost of $39,000 and sold it two years later for $25,300. Strawberry Fields recorded depreciation using the straight-line method, a five-year service life, and an $8,000 residual value.

(1) What was the gain or loss on the sale?
(2) Record the sale.

Answer 1

(a) ($1,300)

Step-by-step explanation:

Accumulated depreciation = (Cost of tractor - residual value) ÷ Service life

= ($39,000 – $8,000) ÷ 5 years

= $6,200 per year

Accumulated depreciation for 2 years = $6,200 per year × 2 years

= $12,400

Book value of the tractor = cost of tractor - Accumulated depreciation

= $39,000 - $12,400

= $26,600

Sale value of the tractor = $25,300

(a) Loss on sale = Sale value of the tractor - Book value of the tractor

= $25,300 - $26,600

= ($1,300)

(b) The journal entry is as follows:

Cash A/c Dr. $25,300

Accumulated depreciation A/c Dr. $12,400

Loss on sale A/c Dr. $1,300

To Equipment A/c $39,000

(To record the sale of equipment)