Question

Carla Vista Company owns equipment that cost $74,000 when purchased on January 1, 2019. It has been depreciated using the straight-line method based on an

estimated salvage value of $14,000 and an estimated useful life of 5 years.

Prepare Carla Vista Company's journal entries to record the sale of the equipment in these four independent situations. (Credit account titles are automatically

indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter for the amounts.)

(a) Sold for $40,000 on January 1, 2022

(b) Sold for $40,000 on May 1, 2022

(c) Sold for $23,000 on January 1, 2022.

(d) Sold for $23,000 on October 1, 2022

Answer 1

Answer:

Carla Vista Company

Journal Entries to record sale of the equipment in four independent situations:

(a) Sold for $40,000 on January 1, 2022 :

Book value of equipment = cost minus accumulated depreciation to date:

= $74,000 - 36,000 = $38,000; profit on sale = $2,000

Debit Sale of Equipment $74,000

Credit Equipment $74,000

To close the equipment account.

Debit Accumulated Depreciation $36,000

Credit Sale of Equipment $36,000

To close the accumulated depreciation account.

Debit Cash Account $40,000

Credit Sale of Equipment $40,000

To record the cash proceeds from sale of equipment

Debit Sale of Equipment $2,000

Credit Gain on Sale of Equipment $2,000

To record the gain from the sale of equipment.

(b) Sold for $40,000 on May 1, 2022 :

Book value of equipment = cost minus accumulated depreciation to date:

= $74,000 - 40,000 = $34,000; profit on sale = $6,000

Debit Sale of Equipment $74,000

Credit Equipment $74,000

To close the equipment account.

Debit Accumulated Depreciation $40,000

Credit Sale of Equipment $40,000

To close the accumulated depreciation account.

Debit Cash Account $40,000

Credit Sale of Equipment $40,000

To record the cash proceeds from the sale of equipment

Debit Sale of Equipment $6,000

Credit Gain on Sale of Equipment $6,000

To record the gain from the sale of equipment.

(c) Sold for $23,000 on January 1, 2022:

Book value of equipment = cost minus accumulated depreciation to date:

= $74,000 - 36,000 = $38,000; loss on sale = $15,000

Debit Sale of Equipment $74,000

Credit Equipment $74,000

To close the equipment account.

Debit Accumulated Depreciation $36,000

Credit Sale of Equipment $36,000

To close the accumulated depreciation account.

Debit Cash Account $23,000

Credit Sale of Equipment $23,000

To record the cash proceeds from the sale of equipment

Debit Loss on Sale of Equipment $15,000

Credit Sale of Equipment $15,000

To record the loss from the sale of equipment.

(d) Sold for $23,000 on October 1, 2022:

Book value of equipment = cost minus accumulated depreciation to date:

= $74,000 - 45,000 = $29,000; loss on sale = $6,000

Debit Sale of Equipment $74,000

Credit Equipment $74,000

To close the equipment account.

Debit Accumulated Depreciation $45,000

Credit Sale of Equipment $45,000

To close the accumulated depreciation account.

Debit Cash Account $23,000

Credit Sale of Equipment $23,000

To record the cash proceeds from the sale of equipment

Debit Loss on Sale of Equipment $6,000

Credit Sale of Equipment $6,000

To record the loss from the sale of equipment.

Explanation:

a) Journal entries come handy at the initial recording of business transactions.  They show the accounts to be debited and ones to be credited in the general ledger.

b) Depreciation charge for each year = $12,000 ($74,000 - $14,000)/5

c) Accumulated Depreciation as at:

Dec. 31, 2019 = $12,000

Dec. 31, 2020 = $24,000

Dec. 31, 2021 = $36,000

May 1, 2022 = $40,000 (36,000 + (12,000/12 x 4))

Oct. 1, 2022 = $45,000 (36,000 + (12,000/12 x 9))