The following journal entry will be passed:
Bank A/C Dr. $26,000
Accumulated Depreciation A/C Dr. $20,000
Loss on sale of Limo Account Dr. $2,000
To Balck Limo company A/C $48,000
Working Notes:
It has been given that,
Cost of Limo = $48,000
Accumulated Depreciation - $20,000
Sale Price of Limo = $26,000
It can be clearly seen that, when we deduct the depreciation, which has been accumulated since many years, from the cost of the limo, i.e. $48,000 - $20,000 = $28,000. We get the remaining value of the value to be $28,000 as calculated. But the limo is then sold for an amount i.e., $26,000, which is lower than its current value, $28,000.
Since the sale value is less than the current value of the limo, there is a loss of $2,000 ($26,000 - $28,000).
Therefore, the loss of $2,000 will be debited to the loss in sale of limo account.
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