Reason Inc. sold its old equipment with original cost of P2,000,000 and accumulated depreciation of P1,800,000 for 3-year P250,000 note. The interest rate of the loan is 7% while the market rate of similar notes is 8%. The journal entry to record the disposal of the equipment would NOT include: CR: Gain on sale of equipment – 56,561 CR: Equipment – 2,000,000 CR: Unearned Interest Income – 6,443 DR: Note Receivable – 250,000
Reason Inc. sold its old equipment with original cost of P2,000,000 and accumulated depreciation of P1,800,000 for 3-year P250,000 note. The interest rate of the loan is 7% while the market rate of similar notes is 8%. The journal entry to record the disposal of the equipment would NOT include: CR: Gain on sale of equipment – 56,561 CR: Equipment – 2,000,000 CR: Unearned Interest Income – 6,443 DR: Note Receivable – 250,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Reason Inc. sold its old equipment with original cost of P2,000,000 and accumulated depreciation of P1,800,000 for 3-year P250,000 note. The interest rate of the loan is 7% while the market rate of similar notes is 8%. The journal entry to record the disposal of the equipment would NOT include:
CR: Gain on sale of equipment – 56,561
CR: Equipment – 2,000,000
CR: Unearned Interest Income – 6,443
DR: Note Receivable – 250,000;
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