Question

Corona Industries purchased a stamping machine on January 2, 20X1, for $100,000. It made an initial payment of $20,000 and financed the balance over 5 years at State Bank. The loan terms were for annual payments of $16,000 plus 10% interest, payable on December 31 each year. The year 20X4 proves to be a difficult year and on December 1, 20X4 Corona negotiates a debt restructuring with State Bank. The settlement calls for cash payment of accrued interest plus $4,000 on December 1 and the transfer of 200 acres of land held by Corona that cost $15,000. The land has a current fair value of $22,000. Which one of the following entries will Corona make to adjust for the land just prior to transfer?

a. DR Loss on disposal of asset $7,000 CR Land $7,000
b. DR Land $7,000 CR Gain on disposal of asset $7,000
c. DR Note payable—State Bank $7,000 CR Gain on disposal of asset $7,000
d. DR Land $7,000 CR Note payable—State Bank $7,000

Answer 1

Answer:

(a) DR Loss on disposal of asset $7,000 CR Land $7,000

Answer 2

The correct option is A).  DR Loss on disposal of asset $7,000 and CR Land $7,000

What is journal entry? What are the debit and credit?

A journal entry is the process of recording a business transaction in the accounting records of a business.

Debits are always on the left side of the entry, which shows an increase in assets or decrease in liabilities.

Credits are always on the right side, which depicts that there is a decrease in assets or an increase in liabilities.

Learn more about the journal entry here:-

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