On april 1st of the current year, a company disposed of a truck that had cost $2
ID: 2543517 • Letter: O
Question
On april 1st of the current year, a company disposed of a truck that had cost $20,000. The truck had a salvage value of $2,000 and a useful life of 5 years. The accounting records showed accumulated depreciation for this truck of $8,100 as of April 1st of the current year. The asset was discarded after an accident, and $10,500 cash was recieved from an insurance claim.
a) Prepare the journal entry to record the partial depreciation expense
b) Prepare the journal entry to record the disposal of the truck
Explanation / Answer
Solution:
Journal entry
Particulars
Debit
Credit
1
Depreciation expense
900
Accumulated depreciation, Automobile
900
(20,000 - 2000) /5 years * 3/12
2
Accumulated depreciation, Automobile
8,100
Cash
10,500
Loss on disposal of automobile
1,400
Automobile
20,000
Depreciation expense: (20,000 - 2,000)/5 - 3,600 per year
Year 1: $3,600
Year 2: $3,600
Year 3: $900 (=360 * 3/12)
Total: $8,100
Journal entry
Particulars
Debit
Credit
1
Depreciation expense
900
Accumulated depreciation, Automobile
900
(20,000 - 2000) /5 years * 3/12
2
Accumulated depreciation, Automobile
8,100
Cash
10,500
Loss on disposal of automobile
1,400
Automobile
20,000
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