Question

In 2022, Blanchard Corporation has plant equipment that originally cost $120,000 and has accumulated depreciation of $48,000. A new processing technique has rendered the equipment obsolete, so it is retired. Which of the following entries should Blanchard use to record the retirement of the equipment?DR Accumulated Depreciation – Equipment 48,000; DR Loss on Disposal of Plant Assets 72,000; CR Equipment 120,000

DR Plant Equipment 120,000; CR Accumulated Depreciation – Equipment 48,000; CR Loss on Disposal of Plant Assets 72,000
DR Loss on Disposal of Plant Assets 72,000; CR Equipment 72,000
DR Loss on Disposal of Plant Assets 72,000; CR Accumulated Depreciation – Equipment 72,000

Answer 1

The correct answer is Option A.

DR Accumulated Depreciation – Equipment 48,000; DR Loss on Disposal of Plant Assets 72,000; CR Equipment 120,000

Step-by-step explanation:

Obsolescence of an asset occurs when the value of an asset has reduced drastically due to radical technological innovation or there is now a better technique used in the production process that renders the old equipment worthless or less productive.

Note that the proceed on the disposal is zero since the organization did not put up the asset for sale.