Question

ABC purchased equipment that cost $120,000. It had an estimated useful life of four years and no residual value. The equipment was depreciated by the straight-line method and was sold at the end of the third year of use for $25,000 cash. ABC should record: a. Debit Cash $25,000, Debit Accumulated Depreciation $90,000, Credit Equipment $120,000 b. Debit Cash $25,000, Debit Accumulated Depreciation $75,000, Credit Equipment $100,000 c. Debit Cash $25,000, Credit Accumulated Depreciation $90,000, Credit Equipment $120,000 d. Debit Cash $25,000, Credit Accumulated Depreciation $75,000, Credit Equipment $100,000

Answer 1

ABC would debit Cash for $25,000, debit Accumulated Depreciation for $90,000, and credit Equipment for $120,000 when selling the equipment at the end of the third year. Option d is correct.

Step-by-step explanation:

When ABC purchased equipment for $120,000 with a useful life of four years and no residual value, and it is depreciated using the straight-line method.

the annual depreciation expense would be $30,000 ($120,000 cost divided by 4 years).

After three years, the total accumulated depreciation would be $90,000.

Upon sale of the equipment for $25,000 cash, the entry to record this transaction involves debiting Cash for $25,000, debiting Accumulated Depreciation for $90,000 to remove it from the books, and crediting Equipment for its original cost of $120,000.

This results in a balanced journal entry reflecting the disposal of the asset.

Hence, option d is correct.