Final answer:
The student asked about the journal entry for the disposal of a van. The entry should remove the asset and its accumulated depreciation and recognize the gain from the sale. The entry will include debits to Cash and Accumulated Depreciation, with credits to the Vehicle account and a Gain on Disposal account.
Step-by-step explanation:
The student's question pertains to the accounting treatment for the disposal of a long-term asset, specifically a van. The correct journal entry would reflect the removal of the asset from the company's books, as well as the accumulated depreciation, and recognize any gain or loss on disposal.
To record the disposal, we first need to remove the van's original cost and the up-to-date accumulated depreciation. We also need to account for the cash received from the sale. If we sold the van for $3,600, we would debit Cash for the sale amount. The van originally cost $22,000, so we would credit Vehicles (or a similar account) for the original cost. The accumulated depreciation on the van is $19,500, which we would debit to remove it from the books. Finally, we need to assess whether there is a gain or loss on the disposal, by comparing the net book value of the van to the sale proceeds.
In this case, the net book value (Cost - Accumulated Depreciation) is $2,500 ($22,000 - $19,500). Since the van sold for $3,600, which is greater than the net book value, there is a gain on the sale of $1,100 ($3,600 - $2,500). Therefore, we would credit a Gain on Disposal account for the gain amount.
Journal Entry:
- Debit Cash $3,600
- Debit Accumulated Depreciation $19,500
- Credit Vehicles $22,000
- Credit Gain on Disposal of Asset $1,100
This accounting entry effectively removes the van and associated depreciation from the company's balance sheet and recognizes the gain from the sale in the income statement.