Question

Cullumber Company sells office equipment on July 31, 2022, for $20,260 cash. The office equipment originally cost $72,300 and as of January 1, 2022, had accumulated depreciation of $35,000. Depreciation for the first 7 months of 2022 is $4,290.Required:Prepare the journal entries to: a. Update depreciation to July 31, 2022. b. Record the sale of the equipment.

Answer 1

Answer:

a.

July 31, 2022

Depreciation expense                                       $4290 Dr

      Accumulated depreciation - Equipment             $4290 Cr

b.

July  31. 2022

Cash                                                          $20260 Dr

Accumulated depreciation-Equipment   $39290 Dr

Loss on disposal                                       $12750 Dr

           Equipment                                            $72300 Cr

Explanation:

a.

The entry would be to charge depreciation expense for the first six months of equipment and to do so, we debit the depreciation expense account and credit the accumulated depreciation account.

b.

We first need to determine the net book value of the asset on the day of sale and then calculate the gain or loss on disposal.

Net Book Value or NBV = Cost - Accumulated depreciation

Accumulated depreciation = 35000 + 4290 = 39290

NBV = 72300 - 39290  = $33010

Loss on disposal = 20260 - 33010 = - $12750 loss