Question

Equipment that cost $420,000 and on which $200,000 of accumulated depreciation has been recorded was disposed of for $180,000 cash. the entry to record this event would include a

Answer 1

The disposal of equipment with an original cost of $420,000, accumulated depreciation of $200,000, and sold for $180,000 results in a loss of $40,000. The journal entry includes debits to Accumulated Depreciation and Loss on Disposal of Equipment, and credits to Equipment and Cash.

Step-by-step explanation:

To record the disposal of equipment in accounting, we need to consider the book value of the equipment and compare it with the proceeds from the sale. The book value is calculated by subtracting the accumulated depreciation from the original cost of the equipment. In this case, the equipment has an original cost of $420,000 and accumulated depreciation of $200,000, making the book value $220,000 ($420,000 - $200,000).

Since the equipment was sold for $180,000, which is less than the book value, a loss on disposal of equipment must be recognized. The loss is the difference between the book value ($220,000) and the sale proceeds ($180,000), which amounts to a loss of $40,000.

The journal entry to record this transaction would be:

• Debit Accumulated Depreciation for $200,000
• Debit Loss on Disposal of Equipment for $40,000
• Credit Equipment for $420,000
• Credit Cash for $180,000

Answer 2

The entry to record this event would include a LOSS OF $40,000.
The equipment original cost = $420,000
Accumulated depreciation = $200,000
Selling price = $180,000
Loss = 180,000 - [420,000 - 200,000]
= 180,000 - 220 = - 40,000
Thus, a loss of $40,000 was experienced in the sale of the equipment.