Question

Harvard Company is selling a piece of equipment on June 30, 2019. Information related to this sale is as follows: Cost of equipment .................................................... $400,000 Accumulated Depreciation as of June 30, 2019........... 150,000 Proceeds from sale........................................................... 350,000
Based on the above information, the journal entry to record the sale will include:

Answer 1

Answer:

June 30, 2019     Accumulated depreciation          150000 Dr

                            Cash                                              350000 Dr

                                   Equipment                                          400000 Cr

                                   Gain on disposal                                100000 Cr

 

Explanation:

The equipment is being sold by the business. So, we will write off this from the account by crediting the equipment account by the amount of the cost of the equipment. The related depreciation expense will also be written off from the books by debiting the account by the amount of depreciation on this equipment.

To calculate the gain or loss on disposal, we fill first calculate the Net book value of the equipment.

NBV = Cost - Accumulated depreciation

NBV = 400000 - 150000  =  $250000

The equipment is sold for 350000 thus there is a gain on disposal of,

Gain on disposal = 350000 - 250000 = $100000