Accounting Made Simple 21

Question 1

1. What if, on the sale of the office furniture, the SALVAGE VALUE does not equal the actual selling price?

Answer 1

If the amount received is greater than the asset’s NET BOOK VALUE, then a GAIN must be recorded on the sale.

Question 2

GAINS on the SALE OF ASSETS work the same as:

Answer 2

REVENUE in that they have CREDIT BALANCES and INCREASE OWNER’S EQUITY.

Question 3

3. However, if on the sale of the ASSET, an amount LESS than the asset’s NET BOOK VALUE is received:

Answer 3

then a LOSS MUST BE RECORDED.

Question 4

4. LOSSES on the sale of assets work much like:

Answer 4

EXPENSES. They have DEBIT BALANCES and they serve to DECREASE OWNER’S EQUITY.

Question 5

5. Example: If at the end of 10 years, Checklist Construction sold the furniture for 3k instead of 2k, the transaction would be:

Answer 5

Cash……………….3k
Accum Depre……..9k
Office Furn……………11k
Gain on Sale of Furn…..1k

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Question 6

6. If, however, Checklist Construction had sold the furniture for only $500, the entry would be:

Answer 6

Cash………………….500
Accum Depre…………..9k
Loss on Sale of Furn…1,500
Office Furniture……………..11k

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