When a company sells equipment for cash on a date other than the last day of the accounting period,it must:
A)record depreciation expense for the entire accounting period during which the equipment is sold.
B)record the disposal by reducing equipment and increasing revenue;a gain or loss is reported if the decrease and increase are not equal.
C)first record depreciation expense for the period up to the date of sale,and then record the disposal by decreasing both equipment and accumulated depreciation while increasing cash;a gain or loss is reported if total assets increase or decrease.
D)record accumulated depreciation for the entire current accounting period.

Question

Quizplus · Accepted Answer

The company should first record depreciation expense for the period up to the date of sale and then record the disposal by decreasing both equipment and accumulated depreciation while increasing cash. This will result in a gain or loss being reported if total assets increase or decrease. Option A is incorrect because the company should only record depreciation up to the date of sale, not for the entire accounting period. Option B is incorrect because revenue should only be recognized at the time of sale, not when the equipment is disposed of. Option D is incorrect because accumulated depreciation is a contra asset account and is not affected by the sale of equipment for cash.

When a Company Sells Equipment for Cash on a Date