A company sells a piece of equipment half-way through the accounting period.The straight-line rate of amortization on the equipment is $40,000 a year.Before recording the asset sale,the company should debit:
A)amortization expense for $40,000 and credit long-lived assets for $40,000.
B)accumulated amortization for $40,000 and credit cash for $40,000.
C)amortization expense for $20,000 and credit accumulated amortization for $20,000.
D)cash for $20,000 and credit amortization expense for $20,000.

Question

Quizplus · Accepted Answer

Since the equipment was sold halfway through the accounting period, only half of the annual amortization expense should be recorded before the sale. Therefore, the company should debit amortization expense for $20,000 (half of $40,000) and credit accumulated amortization for $20,000 to record the amortization expense for the first half of the period. Then, the company should debit cash for the amount received from the sale and credit long-lived assets for the original cost of the equipment.

A Company Sells a Piece of Equipment Half-Way Through the Accounting