Equipment costing $40,000 with a book value of $18,000 is sold for $20,000.Which journal entry is used to record the sale?

Question

Quizplus · Accepted Answer

When selling an asset, we need to recognize the cash received and eliminate the value of the asset from the balance sheet. 
Therefore, we need to debit cash for $20,000 and credit equipment for $40,000 (its original value). 
Since the equipment had been subject to depreciation since its purchase, we also need to debit accumulated depreciation for its accumulated value up to the date of the sale, which is $22,000 ($40,000 original value - $18,000 book value). 
The difference between the cash received and the net value of the asset (the book value less the accumulated depreciation) represents either a gain or a loss on the sale of the asset. 
In this case, because the cash received is less than the net value of the asset, we recognize a gain of $2,000. Therefore, we credit gain on sale of equipment for $2,000. 
The complete journal entry is:
Debit Cash     $20,000
Debit Accumulated Depreciation   $22,000
Credit Equipment  $40,000
Credit Gain on Sale of Equipment  $2,000

Equipment Costing $40,000 with a Book Value of $18,000 Is