Multiple Choice
Which of the following is the correct journal entry to record the purchase of \$1,000 of supplies on credit on December 31?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
When Way Corporation disposes of tangible personal property assets, which of the following journal entries correctly records the sale of equipment for cash at a price above its book value?
A
Debit Cash, credit Equipment, credit Accumulated Depreciation, debit Gain on Sale of Equipment
B
Debit Accumulated Depreciation, debit Loss on Sale of Equipment, credit Equipment, credit Cash
C
Debit Cash, debit Accumulated Depreciation, credit Equipment, credit Gain on Sale of Equipment
D
Debit Equipment, credit Cash, credit Accumulated Depreciation, debit Loss on Sale of Equipment
Verified step by step guidance1
Step 1: Understand the scenario. The problem involves recording the sale of equipment for cash at a price above its book value. This means the equipment was sold for more than its net book value (cost minus accumulated depreciation).
Step 2: Identify the accounts involved. The accounts typically affected in such a transaction are: Cash (for the amount received), Equipment (to remove the asset from the books), Accumulated Depreciation (to remove the depreciation associated with the asset), and Gain on Sale of Equipment (to record the profit from the sale).
Step 3: Determine the journal entry structure. When equipment is sold above its book value, the following entries are made: Debit Cash (to record the cash received), Debit Accumulated Depreciation (to remove the accumulated depreciation), Credit Equipment (to remove the asset from the books), and Credit Gain on Sale of Equipment (to record the profit).
Step 4: Analyze why this structure is correct. Debiting Cash increases the asset account for the cash received. Debiting Accumulated Depreciation removes the depreciation associated with the equipment. Crediting Equipment removes the asset from the books. Crediting Gain on Sale of Equipment records the profit from the sale, which is the difference between the cash received and the book value of the equipment.
Step 5: Compare the options provided. The correct journal entry matches the structure described above: Debit Cash, Debit Accumulated Depreciation, Credit Equipment, Credit Gain on Sale of Equipment. This entry accurately reflects the sale of equipment at a price above its book value.
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