Question

On January 1, Year 5, Raven Limo Service, Inc. sold a used limo that had cost $64,000 and had accumulated depreciation of $36,000. The limo was sold for $30,000 cash. Which of the following shows the adjusting entry necessary to recognize the sale of the asset?

Debit: Cash 30,000 Accumulated Depreciation 36,000
Credit: Limo 64,000 Gain on sale of limo 2,000
a. 30,000 (64,000) (36,000) NA 2,000 2,000 NA 2000 30 000 IA
b. 30,000 (64,000) (36,000) NA 2,000 2,000 NA 2,000 2,000 IA
c. 30,000 (64,000) (36,000) NA 2,000 30,000 NA 30,000 2000 OA
d. 30,000 (64,000) (36,000) NA 2,000 30,000 28,000 2,000 30,000 OA

Answer 1

The adjusting entry necessary to recognize the sale of the limo is to debit Cash $30,000, debit Accumulated Depreciation $36,000, credit Limo $64,000, and credit Gain on sale of limo $2,000.

Step-by-step explanation:

The correct adjusting entry necessary to recognize the sale of the asset is:

1. Debit: Cash $30,000
2. Debit: Accumulated Depreciation $36,000
3. Credit: Limo $64,000
4. Credit: Gain on sale of limo $2,000

When a fixed asset, in this case the limo, is sold, the cash received is debited, reducing its value on the balance sheet. The accumulated depreciation is also debited to remove its accumulated amount. The limo's original cost is credited to remove it as an asset, and the gain on the sale is credited to recognize any profit made from the sale.