Oregon Adventures purchased equipment for $80,000.They sold the equipment at the end of three years for $45,000.If the expected useful life of the equipment was seven years with a residual value of $10,000,and they use straight-line depreciation,which of the following is true regarding the entry to record the sale of the equipment?

Question

Quizplus · Accepted Answer

The book value of the equipment at the end of three years can be calculated as follows:
Cost of equipment = $80,000
Depreciation per year = ($80,000 - $10,000) / 7 = $10,000
Accumulated depreciation after 3 years = $10,000 * 3 = $30,000
Book value at the end of 3 years = $80,000 - $30,000 = $50,000

Since the equipment was sold for $45,000, there is a loss of $5,000. Therefore, the entry to record the sale of the equipment would be:
Debit: Loss on sale of equipment $5,000
Credit: Equipment $80,000
Credit: Accumulated depreciation $30,000
Credit: Cash $45,000

Option A is correct because it reflects the loss incurred on the sale of the equipment. Option B is incorrect because there is a loss and not a gain. Option C is incorrect because accumulated depreciation has already been credited over the three-year period, and it should not be credited again.

Oregon Adventures Purchased Equipment for $80,000