Final answer:
River Rock Creamery had a loss of $2,900 when they sold their ice cream equipment, which was calculated by comparing the book value of the equipment ($18,500) to the sale price ($15,600). The journal entry would debit cash and accumulated depreciation, while crediting equipment and the loss on sale of equipment.
Step-by-step explanation:
Recording the Sale of Ice Cream Equipment
To calculate the gain or loss on the sale of the equipment, we need to determine the equipment's book value at the time of sale. The book value is the original cost of the equipment minus the accumulated depreciation. River Rock Creamery originally purchased the equipment for $89,000 and up through the date of sale, it had accumulated depreciation of $70,500. Therefore, the book value of the equipment was $89,000 - $70,500 = $18,500.
Since River Rock sold the equipment for $15,600, we compare this sale price to the equipment's book value to determine the gain or loss. The sale resulted in a loss because the sale price was lower than the book value. The loss is calculated as follows:
- Book Value of Equipment: $18,500
- Sale Price of Equipment: $15,600
- Loss on Sale of Equipment: $18,500 - $15,600 = $2,900
The journal entry to record the loss would be:
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- Debit Cash $15,600
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- Debit Accumulated Depreciation $70,500
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- Credit Equipment $89,000
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- Credit Loss on Sale of Equipment $2,900