On January 1, 2019, a machine with an estimated life of 5 years and an estimated residual value of $5,000 was acquired for $40,000. On July 1, 2021, the machine was sold for $7,000 cash. The journal entry to record the sale
A)decreases stockholder's equity.
B)increases total assets.
C)decreases total expenses.
D)increases net income.

Question

Quizplus · Accepted Answer

The sale of the machine results in a loss on disposal, which decreases stockholder's equity. The amount of the loss can be calculated as: 
(Original cost - Accumulated depreciation) - Sale price = ($40,000 - $24,000) - $7,000 = $9,000. Therefore, the journal entry to record the sale would be:
Cash 7,000
Loss on disposal of machine 9,000 
Machine 40,000 
Accumulated depreciation 24,000

On January 1, 2019, a Machine with an Estimated Life