Final answer:
The journal entry for Smart Touch Learning's sale of a van involves debiting Loss on Disposal and Accumulated Depreciation, while crediting the Van asset account and Cash, reflecting the loss incurred from the sale.
Step-by-step explanation:
The journal entry to record the disposal of the van would include debiting Loss on Disposal for $4,000, debiting Accumulated Depreciation for $16,000, crediting the Van asset account for $22,000, and crediting Cash for $1,600.
Explanation of Disposal of Asset
When a company sells an asset, they must remove its cost and accumulated depreciation from the books and record any cash received plus any gain or loss on the sale. The cost of the van is $22,000 and the accumulated depreciation is $16,000, leaving a book value of $6,000. Since Smart Touch Learning only received $1,600 from the sale, this results in a loss of $4,400 ($6,000 book value - $1,600 sale proceeds).
Journal Entry:
- Debit Loss on Disposal of Van $4,400
- Debit Accumulated Depreciation – Van $16,000
- Credit Van $22,000
- Credit Cash $1,600
The debited loss on disposal reflects the negative financial impact of the sale on Smart Touch Learning's financial performance.