Strawberry Fields purchased a tractor at a cost of $40,000 and sold it two years later for $25,000. Strawberry Fields recorded depreciation using the straight-line method, a five-year service life, and an $6,000 residual value.

1. What was the gain or loss on the sale?2. Record the sale using a general journal entry.

Question

Business

Jonathon Gordon

4 February, 05:30

Strawberry Fields purchased a tractor at a cost of $40,000 and sold it two years later for $25,000. Strawberry Fields recorded depreciation using the straight-line method, a five-year service life, and an $6,000 residual value.

1. What was the gain or loss on the sale?2. Record the sale using a general journal entry.

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Answers (1)

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Leilani White · Answer 1

1. Loss on sale 1,400

2. Dr Cash 25,000

Dr Accumulated Depreciation 13,600

Dr Loss on sale 1,400

Cr Equipment - Tractor 40,000

Explanation:

1. Calculation of the gain or loss on the sale of Strawberry Fields

Using this formula

Depreciation per year = (Cost - Salvage value) / Useful life

= (40,000-6,000) / 5

=34,000/5

= 6,800 per year

The Book value after two years will be:

40,000 - (6,800*2)

=40,000-13,600

=26,400

Gain (Loss) = Cash received - Book value

= 25,000 - 26,400

Loss on sale 1,400

2. Record of the sale using a general journal entry

Dr Cash 25,000

Dr Accumulated Depreciation 13,600

Dr Loss on sale 1,400

Cr Equipment - Tractor 40,000