Abbott Landscaping purchased a tractor at a cost of $33,000 and sold it three years later for $16,500. Abbott recorded depreciation using the straight-line method, a five-year service life, and a $2,000 residual value. Tractors are included in the Equipment account.

Record the sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Debit Asset disposal account (p/l)  $33,000

Credit Fixed assets Account           $33,000

Debit Accumulated depreciation    $18,600

Credit Asset disposal account (p/l)  $18,600

Debit Cash account $16,500

Credit Asset disposal account (p/l)  $16,500

Explanation:

Asset purchase is recorded as, debit asset , credit cash. When uses, depreciation sets in. To account for depreciation, debit depreciation expense and credit accumulated depreciation. The difference between the accumulated depreciation and the historical cost gives the net book value or the carrying amount.

An asset that is sold must be derecognized from the books after the sale. This is done by crediting the historical cost and debiting the disposal account with the cost, debiting the accumulated depreciation and crediting disposal account with the accumulated depreciation balance at the time disposal.

The amount received from the disposal less the carrying amount gives the gain/loss on sale.

Depreciation = ($33,000 - $2000)/5

= $6200

Accumulated depreciation after 3 years = 3 × $6200

= $18,600

The net book value = $33000 - $18600

= $14,400

The gain/loss on disposal is the ending balance in the Asset disposal account (p/l).

To recognized the sale of the asset

Debit Asset disposal account (p/l)  $33,000

Credit Fixed assets Account           $33,000

Debit Accumulated depreciation    $18,600

Credit Asset disposal account (p/l)  $18,600

Debit Cash account $16,500

Credit Asset disposal account (p/l)  $16,500

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