A company purchased a computer system on January 2,2018 for $1,600,000.The company used the straight-line depreciation method with an estimated useful life of 6 years and a residual value of $130,000.The company prepares financial statements at December 31. Assume the company decides to sell the computer system on July 1,2020 for $1,000,000.Which of the following statements about the journal entry (or entries)required on July 1 is not correct?
A)The depreciation expense must be recorded for 6 months,January 1 to July 1.
B)The Equipment asset account must be credited for $1,600,000 to record the sale.
C)Accumulated Depreciation is debited for $612,500 in the entry to record the sale.
D)The loss on the sale is $12,500.

Question

Quizplus · Accepted Answer

First,update the Deprecation Expense and Accumulated Depreciation accounts.
Depreciation expense for 6 months (January through July)= (Cost − Residual value)× (1 ÷ Useful life)× 6 / 12
= ($1,600,000 − $130,000)× (1 ÷ 6)× 6 / 12 = $122,500
Accumulated depreciation at July 1,2020 = $245,000 + $245,000 + $122,500 = $612,500
Gain (loss)on disposal = Proceeds from sale − Book value at time of sale
Gain (loss)on disposal = Proceeds from sale − (Cost − Accumulated depreciation at time of sale)
= $1,000,000 − ($1,600,000 − $612,500)= $12,500
Then,record the disposal.
Debit Cash $1,000,000,debit Accumulated Depreciation $612,500,credit Equipment $1,600,000,credit Gain on Disposal of PPE $12,500

A Company Purchased a Computer System on January 2,2018 for $1,600,000.The