Q: FedEx sells equipment for $$7,300 cash. The equipment cost 10$$,000, had no residual value, and was depreciated straight-line over 10 years. If sold on September 30, 2021, after being purchased on January 1, 2018, what is the accumulated depreciation at the date of sale?

$$Accumulated\ Depreciation = \frac{10,000}{10} \times 3.75 = 3,750$$

Question 1

When disposing of a plant asset, why must depreciation be brought up to date before recording the disposal?

Accepted Answer

To ensure the asset's final book value and record the expense up to the date of disposal.

Question 2

A machine costing $60,000 with zero residual value is fully depreciated. What is the journal entry to dispose of this asset for no proceeds?

Accepted Answer

Debit Accumulated Depreciation—Machine $$60,000; Credit Machine 60$$,000.

Question 3

FedEx disposes of equipment that cost $$60,000, has 50$$,000 accumulated depreciation, and a book value of $10,000. What is the loss recognized on disposal for no proceeds?

Accepted Answer

$10,000

Question 4

Which formula correctly calculates the book value of a plant asset at the time of disposal?

Accepted Answer

$$Book\ Value = Cost - Accumulated\ Depreciation$$

Question 5

FedEx sells equipment for $$7,300 cash. The equipment cost 10$$,000, had no residual value, and was depreciated straight-line over 10 years. If sold on September 30, 2021, after being purchased on January 1, 2018, what is the accumulated depreciation at the date of sale?

Accepted Answer

$$Accumulated\ Depreciation = \frac{10,000}{10} 	imes 3.75 = 3,750$$

Question 6

What is the gain or loss on sale if the equipment's book value is $$6,250 and it is sold for 7$$,300?

Accepted Answer

$$Gain = 7,300 - 6,250 = 1,050$$

Question 7

Which of the following is NOT a reason to record depreciation up to the date of disposal?

Accepted Answer

To increase the asset's sale price.

Question 8

If an asset is sold for more than its book value, how is the difference recorded?

Accepted Answer

As a gain on disposal.

Question 9

Which account is credited when disposing of a fully depreciated asset for no proceeds?

Accepted Answer

The asset account (e.g., Machine)

Question 10

A company sells equipment for cash. Which accounts are affected in the journal entry to record the sale?

Accepted Answer

Cash, Accumulated Depreciation, Equipment, and Gain/Loss on Disposal

Question 11

If an asset is junked and has a remaining book value, what is the effect on the financial statements?

Accepted Answer

A loss equal to the book value is recognized.

Question 12

Which of the following best describes the straight-line depreciation method?

Accepted Answer

Allocates an equal amount of depreciation expense each year over the asset's useful life.

Question 13

What is the formula for annual straight-line depreciation expense?

Accepted Answer

$$Depreciation\ Expense = \frac{Cost - Residual\ Value}{Useful\ Life}$$

Question 14

A company purchased equipment for $20,000 with a useful life of 5 years and no residual value. What is the annual straight-line depreciation expense?

Accepted Answer

$$\frac{20,000 - 0}{5} = 4,000$$

Question 15

If an asset is sold for less than its book value, how is the difference recorded?

Accepted Answer

As a loss on disposal.

Question 16

Which of the following is a necessary step before disposing of a plant asset?

Accepted Answer

Update depreciation to the date of disposal.

Question 17

A company sells equipment for $$5,000. The equipment's book value is 7$$,000. What is the loss on disposal?

Accepted Answer

$$Loss = 7,000 - 5,000 = 2,000$$

Question 18

Which account is debited when recording the disposal of a fully depreciated asset for no proceeds?

Accepted Answer

Accumulated Depreciation

Question 19

If an asset is sold for cash, which of the following is NOT part of the journal entry?

Accepted Answer

Debit to Depreciation Expense

Question 20

A company disposes of equipment with a cost of $$15,000 and accumulated depreciation of 12$$,000 for no proceeds. What is the loss on disposal?

Accepted Answer

$$Loss = 15,000 - 12,000 = 3,000$$

Plant Assets: Disposal and Sale – Financial Accounting Chapter 7 Study Notes

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