Question

Lincoln, Inc. sold a piece of equipment for $150 cash. The equipment was originally purchased for $1,000, accumulated depreciation at the date of sale equaled $800, and the cost to replace the piece of equipment equals $1,200. Which of the following statements is true regarding the disposal of this piece of equipment?

a. the replacement value of $1,200 of the piece of equipment is removed from the accounting records

b. the original cost of $1,000 for the piece of equipment is removed from the accounting records but the accumulated depreciation of $800 remains on the books until the assets is replaced

c. the company would report a loss of $50 on the sale of the piece of equipment on the income statement

d. the company would report a loss of $250 on the sale of the piece of equipment on the income statement

Answer 1

Replacement cost is not relevant at the time of disposal. At the time of disposal, Original cost and accumulated depreciation on the asset will be removed from the accounting records and actual gain or loss realized on account of sale transaction si recorded.

Book value of equipment sold is = Cost - Accumulated depreciation

Book value of equipment sold is = (1000-800)

Book value of equipment sold is = $ 200/.

Cash received on sale of equipment is = $ 150/.

Since cash received on sale of equipment is less than book value, there exists a loss

Loss of $ 50 on sale of equipment is reported in Income statement. Answer is Option C)

answered by: anonymous