Garcia Co. owns equipment that cost $76,800, with accumulated depreciation of $40,800. Garcia sells the equipment for cash. Record the sale of the equipment under the following three separate cases assuming Garcia sells the equipment for (1) $47,000 cash, (2) $36,000 cash, and (3) $31,000 cash.

1.

Debit Cash $47,000

Debit Accumulated depreciation account $40,800

Credit Gain on asset disposal $11,000

Credit Equipment asset $76,800

2.

Debit Cash $36,000

Debit Accumulated depreciation account $40,800

Credit Equipment asset $76,800

3.

Debit Cash $31,000

Debit Accumulated depreciation account $40,800

Debit Loss on asset disposal $5,000

Credit Equipment asset $76,800

Explanation:

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

First, the company calculates the carrying amount of the equipment by using the original cost of the asset, minus accumulated depreciation.

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

In Garcia Co., the carrying amount of the equipment = $76,800 - $40,800 = $36,000

1. Garcia sells the equipment for $47,000 cash

Sale price - Carrying amount of the equipment = $47,000 - $36,000 = $11,000>0

The company records gain by entry:

Debit Cash $47,000

Debit Accumulated depreciation account $40,800

Credit Gain on asset disposal $11,000

Credit Equipment asset $76,800

2. Garcia sells the equipment for $36,000 cash

Sale price - Carrying amount of the equipment = $36,000 - $36,000 = 0

The entry to record the sale:

Debit Cash $36,000

Debit Accumulated depreciation account $40,800

Credit Equipment asset $76,800

3. Garcia sells the equipment for $31,000 cash

Sale price - Carrying amount of the equipment = $31,000 - $36,000 = - $5,000 <0

The company records loss of the sales by entry:

Debit Cash $31,000

Debit Accumulated depreciation account $40,800

Debit Loss on asset disposal $5,000

Credit Equipment asset $76,800