Question

Information on a depreciable asset owned by Li Engineering is as follows: Purchase date January 1, 2007 Purchase price $45,000 Salvage value $ 5,000 Useful life 8 years Depreciation method straight-line If the asset is sold on July 1, 2011 for $10,000, the journal entry to record the sale will include: OA. A credit to gain for $10,000 OB. A debit to loss on sale for $15,000 OC. A debit to loss on sale for $12,500 D. A debit to accumulated depreciation for $25,000 O E. A credit to cash for $10,000

Answer 1

GIven details are

Purchase date :jan 1st 2007

Purchase price :$45000

Salvage value:$5000

Usefull life: 8years

formula for depreciation :( Purchase price -salvage value )/ Life of asset

=($45000-$5000)/8

Depreciation for year  =$5000

asset sold on july 1st 2011 means four years six month

so accumulated depreciation : $5000*4.5=22500

sold price :$1000

so loss on sale of asset = sale price - carrying amount of asset

=$10000-($45000-$22500)

=($12500)

Hence answer C is correct Debit to loss on sale for $12500