Question

A truck costing $56,000 has accumulated depreciation of $50,000. The truck is scrapped for $700. The journal entry to record this transaction is to:

A. debit Cash for $700, debit Accumulated Depreciation - Truck for $50,000, debit Loss on Disposal for $5,300 and credit Truck for $56,000.

B. debit Cash for $700, debit Truck for $50,000, debit Loss on Disposal for $5,300 and credit Accumulated Depreciation - Truck for $56,000.

C. debit Accumulated Depreciation - Truck for $50,000, debit Loss on Disposal $6,000, and credit Truck for $56,000.

D. debit Cash for $700, debit Loss on Disposal for $55,300 and credit Truck for $56,000.

Answer 1

The correct journal entry for scrapping the truck is option A, which recognizes the cash received, removes the truck's historical cost and accumulated depreciation, and records a loss on disposal of $5,300.

Step-by-step explanation:

The correct journal entry to record the scrapping of a truck that originally cost $56,000 and has accumulated depreciation of $50,000 is to debit Cash for $700, debit Accumulated Depreciation - Truck for $50,000, debit Loss on Disposal for $5,300, and credit Truck for $56,000. This entry recognizes the cash received from scrapping the truck, removes the truck's cost and its associated accumulated depreciation from the books, and records the loss incurred on disposal.

The calculation for the loss on disposal is the net book value of the truck ($56,000 cost less $50,000 accumulated depreciation) minus the cash received ($700). This gives us a loss of $5,300 ($6,000 - $700). Therefore, option A is the correct answer to record the transaction correctly.