1. eBook

   Asset Disposal

   Assume that Gonzalez Company purchased an asset on January 1, 2015, for $74,000. The asset had an estimated life of six years and an estimated residual value of $7,400. The company used the straight-line method to depreciate the asset. On July 1, 2017, the asset was sold for $48,700.

   Required:

   1. Identify and analyze the effect of the transaction for depreciation for 2017.

   Activity	OperatingInvestingFinancingOperating
   Accounts	Depreciation Expense Increase, Accumulated Depreciation - Asset IncreaseDepreciation Expense Increase, Accumulated Depreciation - Asset DecreaseDepreciation Expense Decrease, Accumulated Depreciation - Asset IncreaseDepreciation Expense Decrease, Accumulated Depreciation - Asset DecreaseDepreciation Expense Increase, Accumulated Depreciation - Asset Increase
   Statement(s)	Balance SheetIncome StatementBalance Sheet and Income StatementBalance Sheet and Income Statement

   Feedback

   Depreciation for 2015 to 2017: the straight-line method of depreciation allocates cost of the asset evenly over time. Set up a T account for accumulated depreciation. Depreciation journal entry: Record depreciation for 6 months updating for sale of asset.

   How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.

   Balance Sheet

   Income Statement

   Stockholders'

   Net

   Assets

   =

   Liabilities

   +

   Equity

   Revenues

   Expenses

   =

   Income

   Accumulated Depreciation - AssetAssetAccounts ReceivableCashDepreciation ExpenseNo EntryAccumulated Depreciation - Asset

   fill in the blank d98c3cf97fe104c_2

   Accumulated Depreciation - AssetAssetAccounts ReceivableCashDepreciation ExpenseNo EntryNo Entry

   fill in the blank d98c3cf97fe104c_4

   fill in the blank d98c3cf97fe104c_5

   Accumulated Depreciation - AssetAssetAccounts ReceivableCashDepreciation ExpenseNo EntryNo Entry

   fill in the blank d98c3cf97fe104c_7

   Accumulated Depreciation - AssetAssetAccounts ReceivableCashDepreciation ExpenseNo EntryDepreciation Expense

   fill in the blank d98c3cf97fe104c_9

   fill in the blank d98c3cf97fe104c_10

   Feedback

   Partially correct

   Identify and analyze the effect of the sale of the asset.

   Activity	OperatingInvestingFinancingInvesting
   Accounts	Accumulated Depreciation - Asset Increase, Cash Increase, Asset Decrease, Gain on Sale of Asset IncreaseAccumulated Depreciation - Asset Increase, Cash Increase, Asset Decrease, Gain on Sale of Asset DecreaseAccumulated Depreciation - Asset Decrease, Cash Increase, Asset Decrease, Gain on Sale of Asset IncreaseAccumulated Depreciation - Asset Decrease, Cash Increase, Asset Decrease, Gain on Sale of Asset DecreaseAccumulated Depreciation - Asset Decrease, Cash Increase, Asset Decrease, Gain on Sale of Asset Increase
   Statement(s)	Balance SheetIncome StatementBalance Sheet and Income StatementBalance Sheet and Income Statement

   Feedback

   Record sale: Book value = asset acquisition cost (amount recorded in account) less the accumulated depreciation. Determine the gain or loss. Increase Cash for amount received. Remove the asset account and associated Accumulated Depreciation account.

   How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.

   Balance Sheet

   Income Statement

   Stockholders'

   Net

   Assets

   =

   Liabilities

   +

   Equity

   Revenues

   Expenses

   =

   Income

   Accumulated Depreciation - AssetAccounts PayableAccounts ReceivableDepreciation ExpenseLoss on Sale of AssetNo EntryAccumulated Depreciation - Asset

   fill in the blank db2b7806bfc9041_2

   Accumulated Depreciation - AssetCashDepreciation ExpenseGain on Sale of AssetLoss on Sale of AssetNo EntryNo Entry

   fill in the blank db2b7806bfc9041_4

   fill in the blank db2b7806bfc9041_5

   Accumulated Depreciation - AssetCashDepreciation ExpenseGain on Sale of AssetLoss on Sale of AssetNo EntryGain on Sale of Asset

   fill in the blank db2b7806bfc9041_7

   Accumulated Depreciation - AssetAccounts PayableAccounts ReceivableDepreciation ExpenseLoss on Sale of AssetNo EntryNo Entry

   fill in the blank db2b7806bfc9041_9

   fill in the blank db2b7806bfc9041_10

   Accounts PayableAccounts ReceivableCashDepreciation ExpenseGain on Sale of AssetNo EntryCash

   fill in the blank db2b7806bfc9041_12

   Accumulated Depreciation - AssetAssetAccounts ReceivableDepreciation ExpenseLoss on Sale of AssetNo EntryNo Entry

   fill in the blank db2b7806bfc9041_14

   fill in the blank db2b7806bfc9041_15

   Accumulated Depreciation - AssetAssetAccounts ReceivableDepreciation ExpenseLoss on Sale of AssetNo EntryNo Entry

   fill in the blank db2b7806bfc9041_17

   Accounts ReceivableAccounts PayableCashDepreciation ExpenseGain on Sale of AssetNo EntryNo Entry

   fill in the blank db2b7806bfc9041_19

   fill in the blank db2b7806bfc9041_20

   AssetAccounts PayableDepreciation ExpenseGain on Sale of AssetLoss on Sale of AssetNo EntryAsset

   fill in the blank db2b7806bfc9041_22

   Accumulated Depreciation - AssetAssetAccounts PayableDepreciation ExpenseLoss on Sale of AssetNo EntryNo Entry

   fill in the blank db2b7806bfc9041_24

   fill in the blank db2b7806bfc9041_25

   Accumulated Depreciation - AssetAssetAccounts PayableDepreciation ExpenseLoss on Sale of AssetNo EntryNo Entry

   fill in the blank db2b7806bfc9041_27

   AssetAccounts PayableDepreciation ExpenseGain on Sale of AssetLoss on Sale of AssetNo EntryNo Entry

   fill in the blank db2b7806bfc9041_29

   fill in the blank db2b7806bfc9041_30

   Feedback

   Partially correct

   2. How should the gain or loss on the sale of the asset be presented on the income statement?

   The gain or loss should appear in the

   Operating Expenses Other Income/Expense categoryRevenue Other Income/Expense category

   of the income statement to indicate that it

   is is notis not

   part of the normal operating activity of the company.

   Feedback

   Correct

   Feedback

   Partially correct