Equipment acquired on January 1, 2012, is sold on June 30, 2015, for $4,500. The equipment cost $10,000, had an estimated residual value of $3,000, and an estimated useful life of 5 years. The equipment has been amortized using the straight-line method. The journal entry to record the sale of the equipment involves a:

Question

Quizplus · Accepted Answer

When equipment is sold, the cost and accumulated depreciation of the equipment must be removed from the books, and any gain or loss on the sale must be recorded. Since the equipment was amortized using the straight-line method, we can find the accumulated depreciation by subtracting the residual value ($3,000) from the original cost ($10,000) and dividing by the useful life (5 years):
($10,000 - $3,000) / 5 years = $1,400 of depreciation per year
Since the equipment was used for 3.5 years (from January 1, 2012, to June 30, 2015), the accumulated depreciation would be:
$1,400 per year x 3.5 years = $4,900
Therefore, the journal entry to record the sale of the equipment would be:
Debit Cash for $4,500
Debit Accumulated Depreciation for $4,900
Credit Equipment for $10,000
Credit Gain on Sale of Asset for $600 ($4,500 - $3,900)

Equipment Acquired on January 1, 2012, Is Sold on June