Question

Prepare journal entries for each of the following transactions entered into by the City of Loveland.

The Public Works Department sold machinery with a historical cost of $35,100 and accumulated depreciation of $28,700 for $6,000. The machinery had originally been purchased with special revenue funds.
a. Debit: Cash $6,000; Debit: Accumulated Depreciation $28,700; Credit: Machinery $35,100

b. Debit: Cash $6,000; Debit: Machinery $35,100; Credit: Accumulated Depreciation $28,700

c. Debit: Cash $6,000; Credit: Machinery $6,000

d. Debit: Special Revenue Fund $6,000; Credit: Machinery $6,000

Answer 1

The correct journal entry for the sale of machinery by the City of Loveland includes a debit to Cash for $6,000, a debit to Accumulated Depreciation for $28,700, and a credit to Machinery for $35,100. An additional entry records a loss if the sale price is less than the book value. Option 'a' is the correct choice for recording this transaction.

Step-by-step explanation:

The correct journal entry for the sale of machinery by the City of Loveland is as follows:

• Debit: Cash $6,000 (to record the cash received)
• Debit: Accumulated Depreciation $28,700 (to remove the accumulated depreciation from the books)
• Credit: Machinery $35,100 (to remove the historical cost of the machinery from the books)

This entry reflects that the machinery's book value at the time of sale was its historical cost ($35,100) minus the accumulated depreciation ($28,700), resulting in a remaining book value of $6,400. However, since the machinery was sold for $6,000, this will result in a loss of $400, which would require an additional journal entry.

Here is the journal entry to record the loss on the sale:

• Debit: Loss on Sale of Machinery $400
• Credit: Cash or Other Income Account $400

So, the complete journal entry would combine the debits and credits of both transactions recording the cash received, the removal of the asset and its accumulated depreciation, and the loss on sale.