Blossom Company sells office equipment on July 31, 2022, for $23,730 cash. The office equipment originally cost $79,700 and as of January 1, 2022, had accumulated depreciation of $36,130. Depreciation for the first 7 months of 2022 is $4,970. Prepare the journal entries to (a) update depreciation to July 31, 2014, and (b) record the sale of the equipment. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

a. The entries are:

Debit Depreciation expenses for $4,920;

Credit Accumulated depreciation for $4,920.

b. The entries are:

Debit Cash for $23,730

Debit Accumulated depreciation for $41,100

Debit Loss on disposal of equipment for $14,870

Credit Equipment for $79,700

Explanation:

(a) Prepare the journal entries to update depreciation to July 31, 2022.

Note: the correct date to update to is July 31, 2022 not the wrongly stated July 31, 2014 in the question.

The journal entries will look as as follows:

Date      Particulars                                         Dr ($)               Cr ($)    

July 31  Depreciation expenses                   4,920

            Accumulated depreciation                                      4,920

           To record the updating of depreciation to July 31, 2022.      

(a) Prepare the journal entries to record the sale of the equipment.

To prepare this, we need to first calculate the gain or loss on disposal as follows:

Accumulated depreciation till date = $36,130 + $4,970 = $41,100

Net book value = Equipment cost - Accumulated depreciation till date = $79,700 - $41,100 = $38,600

Gain or loss on disposal = Sales proceed - Net book value = $23,730 - $38,600 = $14,870 loss

The journal entries will be as follows:

Date      Particulars                                                 Dr ($)             Cr ($)    

July 31  Cash                                                        23,730

             Accumulated depreciation                     41,100

             Loss on disposal of equipment              14,870

             Equipment                                                                         79,700

             (To record disposal of equipment.)                                                

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