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keagangriffin · Aug 23, 2009, 03:33 PM

Edward Company purchased a bulldozer on July1 , 2003.for $120,000, and estimated the useful life of the bulldozer
to be 60,000 hours of use, and a salvage value of $30,000. In 2003, they used the bulldozer for 12,000 hours, and in
2004, it was used for 16,000 hours before it was destroyed by a fire. The proceeds from the insurance company were
$80,000. The journal entry to record the disposal of the bulldozer will include a:
A) debit to loss on disposal of $7,000
B) credit to gain on disposal of $2,000
C) debit to loss on disposal of $2,000
D) debit to loss on disposal of $16,000
E) credit to gain on disposal of $16,000

HELPP... The answer is B.. but could you show me WHY?

pready · Aug 23, 2009, 03:47 PM

First you need to compute the Depreciation Expense for each hour of use. Take the purchase price - salvage value / estimated useful life. This is the cost per hour of use. Take this number * total number of hours of use to get the total Depreciation Expense otherwise known as your Accumulated Depreciation. The cost of the equipment - the accumulated depreciation is the book value.
The difference between the book value and the proceeds received will be a Debit(loss) or a credit (gain)

Also when you get rid of equipment you will have the following journal entries:
Debit Cash for 80,000
Debit Accumulated Depreciation for xx,xxx
Credit Equipment for 120,000
either Debit for a loss or credit for a gain for the difference and the amount of the difference.
Once you calculate the Accumulated Depreciation then you can get the remaining journal entry.