Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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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?

Debit Cash, credit Equipment, credit Accumulated Depreciation, debit Gain on Sale of Equipment

Debit Accumulated Depreciation, debit Loss on Sale of Equipment, credit Equipment, credit Cash

Debit Cash, debit Accumulated Depreciation, credit Equipment, credit Gain on Sale of Equipment

Debit Equipment, credit Cash, credit Accumulated Depreciation, debit Loss on Sale of Equipment

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Verified step by step guidance

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.