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

Question

Quizplus · Accepted Answer

Since the equipment was sold halfway through the accounting period, it means it was used for only half the year. Therefore, the amount of depreciation recorded should be half of the full-year amount of $40,000, which is $20,000. The company should debit depreciation expense for $20,000 and credit accumulated depreciation for $20,000 to record the sale of the asset. Option A and B are incorrect because they assume the full-year depreciation rate should be recorded. Option D is incorrect because it suggests recording the sale of the asset as a debit to cash, which is not accurate since the equipment was sold halfway through the accounting period and therefore would not have been fully paid off.

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