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30 October, 01:13

Strawberry Fields purchased a tractor at a cost of $40,000 and sold it two years later for $25,000. Strawberry Fields recorded depreciation using the straight-line method, a five-year service life, and an $6,000 residual value.

1. What was the gain or loss on the sale?2. Record the sale using a general journal entry.

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  1. 30 October, 01:18
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    1. Loss on sale 1,400

    2. Dr Cash 25,000

    Dr Accumulated Depreciation 13,600

    Dr Loss on sale 1,400

    Cr Equipment - Tractor 40,000

    Explanation:

    1. Calculation of the gain or loss on the sale of Strawberry Fields

    Using this formula

    Depreciation per year = (Cost - Salvage value) / Useful life

    = (40,000-6,000) / 5

    =34,000/5

    = 6,800 per year

    The Book value after two years will be:

    40,000 - (6,800*2)

    =40,000-13,600

    =26,400

    Gain (Loss) = Cash received - Book value

    = 25,000 - 26,400

    Loss on sale 1,400

    2. Record of the sale using a general journal entry

    Dr Cash 25,000

    Dr Accumulated Depreciation 13,600

    Dr Loss on sale 1,400

    Cr Equipment - Tractor 40,000
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