CFA Practice Question
There are 520 practice questions for this study session.
CFA Practice Question
Assume that the depreciation on a machine costing $18,000 has been recorded for nine years at the rate of $1,200 per year. If the machine is sold in the middle of the tenth year for $7,000, what should be the journal entry?
Correct Answer: Since the sale happened in the middle of the year, a $600 depreciation should be made that year.
- debit cash for $7,000
- debit accumulated depreciation for $11,400 (9 x $1,200 + $600)
- credit machine for $18,000
- credit Gain on Disposal of Machinery for $400
User Contributed Comments 14
|vincenthuang||where does the $600 come from?|
|min||It's the depreciation for half a year in the tenth year.|
|Done||where does the credit gain on disposal come from?|
|mtcfa||Yes how do you know that the $400 is a gain? What if the market value was $10,000. It would then have been sold at a loss.|
|shasha||mtcfa: It must be a gain. The accounting cost of the machine at the time of the transaction was 9.5 x 1200 = 11,400, leaving a balance of 6,600.|
|cfaajay||18000 + x = 11400 + 7000
x = 400 credit gain on disposal
|shiva5555||I hate accounting.|
|thekobe||just compare 18,000 vs 18,400|
|moneyguy||is gain on disposal an asset account? CREDIT gain on disposal is confusing to me for some reason.|
|johntan1979||Cash from sale of asset + Accumulated Depreciation - Cost of asset = Gain or loss|
|Yrazzaq88||This is too easy.
Let's start with the easier parts:
Cash = 7K (debit)
Machine = 18K value (credit)
Now we need accumulated depreciation
1200 per year x 9.5=11,400 (debit)
Profit on machine = Machine (cost value) - Accumlated Dep = $6,600
Cash (what you received) was 7K(debit), which was more than $6,600 (the intended value)... Therefore, we received a profit of $400(credit)
|GBolt93||Moneyguy, gains/losses are an I/S account not B/S, so you should credit increases (gains) and debit decreases (losses). Think about a regular sale where you might debit cash or unearned revenue (BS accounts) and credit revenue (I/S account).|
|gc1210||Why would debit means what you received? You gain 7K cash shouldn't you credit 7K cash?|