Question

Infinity Corporation purchased equipment with a 10-year useful life and zero residual value for $10,000. At the end of the fifth year, the equipment was destroyed in a fire. If the equipment is not insured, the entry to record the retirement of this asset will include _______. Assume the straight-line depreciation method is used.

A. a debit to Accumulated Depreciation for $5,000
B. a debit to Loss for $5,000
C. a credit to Equipment for $5,000
D. a credit to Equipment for $10,000
E. a debit to Depreciation Expense for $5,000

Answer 1

Answer:

C. a credit to Equipment for $5,000

Explanation:

Cost of equipment  = $10,000.

Residual value = 0

Useful life = 10 years

Depreciation is the allocation of cost top an asset over it's useful life.

Depreciation = (cost - residual value)/useful life

= $10,000/10

= $1,000

After 5 years, the accumulated depreciation on the equipment

= 5 × $1000

= $5,000

The carrying amount of the asset as at the end of the 5th year

= $10000 - $5000

= $5000

On destruction of the asset, this has to be written off the books by passing the following entries,

Dr impairment expense (p/l)   $5000

Cr Equipment                           $5000

Hence the right answer is C. a credit to Equipment for $5,000