Equipment that cost $420000 and on which $200000 of accumulated depreciation has been recorded was disposed of for $180000 cash. The entry to record this event would include a
A) gain of $40000.
B) loss of $40000.
C) credit to the Equipment account for $220000.
D) credit to Accumulated Depreciation for $200000.

Question

Quizplus · Accepted Answer

When an asset is sold for less than its net book value (cost minus accumulated depreciation), a loss is incurred. In this case, the net book value of the equipment is $420,000 - $200,000 = $220,000. Since the equipment was sold for only $180,000, a loss of $40,000 ($220,000 - $180,000) was incurred. Therefore, the entry to record the disposal would include a debit to the cash account for $180,000, a credit to the equipment account for $420,000, a credit to the accumulated depreciation account for $200,000, and a debit to the loss on disposal account for $40,000.

Equipment That Cost $420000 and on Which $200000 of Accumulated