Management’s ChoiceAnnual depreciation expense varies considerably among the methods, but total depreciation expense is the same ($12,000) for the five-year period.
ILLUSTRATION 9-12Comparison of depreciation methodsManagement’s Choice
Companies dispose of plant assets in three ways —Retirement, Sale, or Exchange.Record depreciation up to the date of disposal.Eliminate assetby (1) debiting Accumulated Depreciation, and (2) crediting the asset account.Explain how to account for the disposal of plant assets.
Compare the book valueof the asset with the proceedsreceived from the sale. If proceeds exceed the book value, a gainon disposal occurs. If proceeds are less than the book value, a losson disposal occurs.SALE OF PLANT ASSETS
Depreciation Expense8,000Accumulated Depreciation—Equipment 8,000Illustration:On July 1, 2017, Wright Company sells office furniture for $16,000 cash. The office furniture originally cost $60,000. As of January 1, 2017, it had accumulated depreciation of $41,000. Depreciation for the first six months of 2017 is $8,000. Prepare the journal entry to record depreciation expense up to the date of sale, July 1.SALE OF PLANT ASSETS
Illustration:Wright records the sale as follows on July 1.SALE OF PLANT ASSETSCash 16,000Accumulated Depreciation—Equipment 49,000Equipment 60,000Gain on Disposal of Plant Assets 5,000
Illustration:Assume that instead of selling the office furniture for $16,000, Wright sells it for $9,000.SALE OF PLANT ASSETSCash 9,000Accumulated Depreciation—Equipment 49,000Loss on Disposal of Plant Assets 2,000Equipment 60,000
No cashis received. Decrease(debit) Accumulated Depreciationfor the full amount of depreciation taken over the life of the asset.Decrease(credit) the asset accountfor the original cost of the asset.RETIREMENT OF PLANT ASSETS
Overland Trucking has an old truck that cost $30,000 and has accumulated depreciation of $16,000. Assume two different situations: 1.The company sells the old truck for $17,000 cash. 2.The truck is worthless, so the company simply retires it. What entry should Overland use to record scenario 1?
1.The company sells the old truck for $17,000 cash.