Question

Ridge Company sold equipment with a cost of $75,000 and accumulated depreciation of $40,000 for $37,000. The journal entry to record this transaction will include:

A. a credit to the Equipment account for $35,000.
B. a credit to a gain account for $38,000.
C. a debit to a loss account for $2,000.
D. a credit to Accumulated Depreciation - Equipment for $40,000.

Answer 1

The correct journal entry for Ridge Company's sale of equipment includes crediting the Accumulated Depreciation - Equipment account for $40,000, as the sale resulted in a gain and not a loss.

Step-by-step explanation:

Equipment for $40,000. In accounting, when equipment is sold, the transaction is recorded by removing the asset from the books, along with its associated accumulated depreciation. The gain or loss on disposal is then calculated as the difference between the sales proceeds and the net book value of the asset.

In this case, here's how the journal entry would be calculated:

• Debit Cash for the sale proceeds: $37,000.
• Debit Accumulated Depreciation - Equipment to remove the asset's depreciation: $40,000.
• Credit Equipment to remove the asset from the books: $75,000.
• Debit Loss on sale of equipment (or credit Gain, if applicable) for the difference, if the proceeds are less (or more) than the book value.

The book value of the equipment is the cost minus the accumulated depreciation ($75,000 - $40,000 = $35,000). Since the equipment is sold for $37,000, which is $2,000 more than the book value, this results in a gain of $2,000, which is credited to the Gain on Sale of Equipment account. Therefore, there is no debit to a loss account as the transaction resulted in a gain.