On December 29, 2015, Patel Products, Inc., sells a delivery van that cost $20,000. After recording the entry to bring the accumulated depreciation up-to-date, the delivery van had accumulated depreciation of $18,000. Patel received $2,500 cash from the purchaser of the delivery van. Complete the necessary journal entry to record the sale by selecting the account names and dollar amounts from the drop-down menus.

Debit Other income/disposal account (p/l) $20,000

Credit Asset account  $20,000

Being entries to derecognize the cost of the asset disposed

Debit Accumulated depreciation account $18,000

Credit Other income/disposal account (p/l)  $18,000

Being entries to derecognize the accumulated depreciation of the asset at the date of disposal.

Debit Cash account $2,500

Credit Other income/disposal account (p/l) $2,5000

Being entries to record the amount received from the disposal or sale of the asset.

Explanation:

When the amount received from the disposal of an asset is higher than the carrying value of the asset, the company makes a loss on disposal. The proceed from the disposal of an asset may be recorded in the disposal or other income account.

On disposal, the carrying amount of the asset is derecognized by

Debit Other income/disposal account (p/l)

Credit Asset account

with the cost of the asset, then,

Debit Accumulated depreciation account

Credit Other income/disposal account (p/l)

With the accumulated depreciation of the asset at the date of disposal,

Furthermore,

Debit Cash account

Credit Other income/disposal account (p/l)

with the amount received from the disposal or sale of the asset

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