Stout Corp. sold some fully amortized equipment for $2,600 cash. The equipment had been purchased for $26,500 and Stout Corp. had estimated the useful life at 8 years and residual value at $3,500. The journal entry to record the sale of the equipment will include a:

Question

Quizplus · Accepted Answer

To calculate the gain or loss on the sale of equipment, compare the cash received ($2,600) to the book value of the equipment, which is the original cost minus accumulated depreciation. 
Book Value = Original Cost - Accumulated Depreciation 
Book Value = $26,500 - (8 years x $3,125 per year) 
Book Value = $26,500 - $25,000 
Book Value = $1,500

Since the cash received ($2,600) is greater than the book value ($1,500), there is a gain on the sale of equipment. The journal entry to record the sale of equipment is:

Debit Cash $2,600 
Debit Accumulated Depreciation $25,000 
Debit Loss on Sale of Equipment $900 
Credit Equipment $26,500

Therefore, the correct choice is D, as it includes the necessary debit to Loss on Sale of Equipment for the amount of the gain. The other choices do not reflect the correct accounting treatment for the sale of fully amortized equipment.