Question

Terra Corporation purchased equipment with a 10-year useful life and zero residual value for $100,000. At the end of the seventh year, the equipment is sold for $20,000. The entry to record this sale will include _______. Assume the straight-line depreciation method is used. (Select all that apply.)

Answer 1

the options available for this question are,

1) a debit to Cash for $20,000

2) a credit to Equipment for $30,000

3) a credit to Equipment for $100,000

4) a debit to Loss for $10,000

5) a credit to Gain for $20,000

6) a debit to Accumulated Depreciation for $10,000

7) a debit to Accumulated Depreciation for $70,000

and the correct answers are,

1, 3, 4 and 7

Step-by-step explanation:

Cash is obviously debited since you get cash for the sale. you have to remove the asset from your accounts so you credit the asset the amount of its cost.

as you remove the asset, you must remove the total accumulated depreciation of that asset from all the other asset depreciation. so you debit the amount to the accumulated depreciation account.

the net value of the asset is $30,000, get this by deducting the total depreciation from the cost of the asset. then you receive $20,000 for the asset.

so that means you have a loss of $10,000!

see?? easy peasy right!??