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A machine which had cost of $20,000 and had accumulated depreciation of $17,200 was sold during 20X7 for $4,800. The total cost of machinery shown in the December 20X6 statement of financial position was $180,000 and the related accumulated depreciation was $92,000. The business uses 10% straight line depreciation on machinery and no depreciation is charged in the year in which an asset is sold.
Question
What entries are required to record the sale of the machine in 20X7?
A) Debit cash account with $4,800, debit the machinery account with $4,800 and credit accumulated depreciation account with $9,600.B) Debit cash with $4,800, credit machinery with $3,400 and credit accumulated depreciation with $1,400.
C) Debit cash with $4,800, debit accumulated depreciation with $17,200 and credit machinery with $22,000.
D) Debit accumulated depreciation with $17,200, debit cash with $4,800, credit machinery with $20,000 and debit disposal with $20,000.
Correct answer is D.
Can you explain why is he debiting disposal by 20000 in D?My entries were
Dr cash 4800, Dr Accumulated Depreciation 17200
Cr NCA 20000, Cr Gain on Capital 2000.Your answer is fine. The very full set of adjustments (which amounts to the same thing as yours) but which makes the double entry explicit would be:
Cr NCA 20,000
Dr Disposal account 20,000Dr Accumulated depreciation 17,200
Cr Disposal account 17,200Dr Cash 4,800
Cr Disposal account 4,800That produces a Cr balance on the disposal account of 2,000 which is the profit on disposal
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