Marks Consulting purchased equipment costing $45,000 on January 1, Year 1. The equipment is estimated to have a salvage value of $5,000 and an estimated useful life of 8 years. Straight-line depreciation is used. If the equipment is sold on July 1, Year 5 for $20,000, the journal entry to record the sale will include a:
A) Credit to cash for $20,000.
B) Debit to accumulated depreciation for $22,500.
C) Debit to loss on sale for $10,000.
D) Credit to loss on sale for $10,000.
E) Debit to gain on sale for $2,500.
B) Debit to accumulated depreciation for $22,500.
Explanation: Annual depreciation is $5,000 [($45,000 - $5,000)/8 years]. On July 1, Year 5, the asset will have been depreciated for 4.5 years for a total of $22,500. The resulting book value on that date will be $22,500. The journal entry to record the sale of the asset would be as follows:
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