Question

Porter Corp. sold some fully depreciated equipment for $3,000 cash. The equipment had been purchased for $151,500 and Porter Corp. had estimated the useful life at 8 years and residual value at $3,500. The journal entry to record the sale of the equipment will include a:

Select one:
a. debit to Loss on Sale of Equipment for $3,500
b. debit to Accumulated Depreciation for $148,000
c. credit to Equipment for $3,500
d. credit to Gain on Sale of $500

Answer 1

The correct journal entry to record the sale of fully depreciated equipment includes a debit to Accumulated Depreciation for the amount of depreciation taken over the equipment's life and credits the Equipment account for its original cost, with the difference between the sale price and residual value credited as Gain on Sale of Equipment.

Step-by-step explanation:

The journal entry to record the sale of fully depreciated equipment for $3,000 cash when the equipment had an original purchase price of $151,500, an estimated useful life of 8 years, and a residual value of $3,500, would include a debit to Accumulated Depreciation for $148,000, which is calculated by taking the original cost minus the residual value ($151,500 - $3,500). The entry would also include a credit to the Equipment account for the original purchase price of $151,500, a debit to Cash for the sale amount of $3,000, and a credit to Gain on Sale for $500, which is the difference between the sale amount and the residual value ($3,000 - $3,500 = -$500; hence, a gain and not a loss).