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21 November, 02:49

Prine Company purchased equipment on January 1, 2018 , for $ 25 comma 000. Suppose Prine Company sold the equipment for $ 3 comma 000 on December 31 comma 2019. Accumulated Depreciation as of December 31, 2019 , was $ 16 comma 000. Journalize the sale of the equipment, assuming straight-line depreciation was used.

Required:

a. Calculate any gain or loss on the sale of the equipment.

b. Journalize the sale of the equipment

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  1. 21 November, 02:56
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    a. The company recognizes loss on the sale of the equipment $6,000

    b. The entry to record the sale of the equipment:

    Debit Cash $3,000

    Debit Accumulated depreciation account $16,000

    Debit Loss on sale equipment $6,000

    Credit Equipment $25,000

    Explanation:

    To recognize gain or loss on the sale of the equipment:

    First, the company calculates the carrying amount of the asset by using the original cost of the asset, minus all accumulated depreciation and any accumulated impairment charges.

    Then, subtract this carrying amount from the sale price of the asset. If the remainder is positive, it is a gain and if the remainder is negative, it is a loss

    On December 31, 2019 , the carrying amount of the asset = $25,000 - $16,000 = $9,000

    Sale price - Carrying amount of the asset = $3,000 - $9,000 = - $6,000

    => The company recognizes loss on the sale of the equipment $6,000

    b. The entry to record the sale should be made:

    Debit Cash $3,000

    Debit Accumulated depreciation account $16,000

    Debit Loss on sale equipment $6,000

    Credit Equipment $25,000
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