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Basic Question 2 of 9
Assume that the depreciation on a machine costing $18,000 has been recorded for nine years at the rate of $1,200 per year. If the machine is sold in the middle of the tenth year for $7,000, what should be the journal entry?
User Contributed Comments 14
| User | Comment |
|---|---|
| vincenthuang | where does the $600 come from? |
| min | It's the depreciation for half a year in the tenth year. |
| Done | where does the credit gain on disposal come from? |
| mtcfa | Yes how do you know that the $400 is a gain? What if the market value was $10,000. It would then have been sold at a loss. |
| shasha | mtcfa: It must be a gain. The accounting cost of the machine at the time of the transaction was 9.5 x 1200 = 11,400, leaving a balance of 6,600. |
| wundac | 18400-7000-10800-600=400 |
| cfaajay | 18000 + x = 11400 + 7000 x = 400 credit gain on disposal |
| shiva5555 | I hate accounting. |
| thekobe | just compare 18,000 vs 18,400 |
| moneyguy | is gain on disposal an asset account? CREDIT gain on disposal is confusing to me for some reason. |
| johntan1979 | Cash from sale of asset + Accumulated Depreciation - Cost of asset = Gain or loss |
| Yrazzaq88 | This is too easy. Let's start with the easier parts: Cash = 7K (debit) Machine = 18K value (credit) Now we need accumulated depreciation 1200 per year x 9.5=11,400 (debit) Profit on machine = Machine (cost value) - Accumlated Dep = $6,600 Cash (what you received) was 7K(debit), which was more than $6,600 (the intended value)... Therefore, we received a profit of $400(credit) |
| GBolt93 | Moneyguy, gains/losses are an I/S account not B/S, so you should credit increases (gains) and debit decreases (losses). Think about a regular sale where you might debit cash or unearned revenue (BS accounts) and credit revenue (I/S account). |
| gc1210 | Why would debit means what you received? You gain 7K cash shouldn't you credit 7K cash? |
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Learning Outcome Statements
explain and evaluate how impairment and derecognition of property, plant, and equipment and intangible assets affect the financial statements and ratios
CFA® 2024 Level I Curriculum, Volume 2, Module 7.