Allyn Company purchased equipment costing 55,000 on January 1, Year 1. The equipment is estimated to have a salvage value of 5,000 and an estimated useful life of 5 years. Straight -line depreciation is used and all depreciation has been recorded as of December 31, Year 4. If the equipment is sold on December 31, Year 4 for 20,000 the journal entry to record the sale is: Debit Cash, 20,000 Debit Loss on Sale, 35,000 Credit Equipment, 55,000 Debit Cash, 20,000 Debit Accumulated Depreciation, 35,000 Credit Equipment, 55,000 Debit Cash, 20,000 Credit Equipment, 15,000 Credit Gain on Sale, 5,000 Debit Cash, 20,000 Debit Depreciation Expense, 40,000 Credit Equipment, 55,000 Credit Gain on Sale, 5,000 Debit Cash, 20,000 Debit Accumulated Depreciation, 40,000 Credit Equipment, 55,000 Credit Gain on Rale, 5,000.

To determine the correct journal entry for the sale of the equipment, we need to follow these steps:<br /><br />1. Calculate the total accumulated depreciation up to December 31, Year 4.<br />2. Determine the book value of the equipment as of December 31, Year 4.<br />3. Compare the sale price with the book value to determine if there is a gain or loss on the sale.<br />4. Record the journal entry based on the above calculations.<br /><br />### Step 1: Calculate Total Accumulated Depreciation<br /><br />The straight-line depreciation method is used, and the formula for annual depreciation expense is:<br />\[ \text{Annual Depreciation Expense} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}} \]<br /><br />Given:<br />- Cost of equipment = \( \$ 55,000 \)<br />- Salvage value = \( \$ 5,000 \)<br />- Useful life = 5 years<br /><br />\[ \text{Annual Depreciation Expense} = \frac{55,000 - 5,000}{5} = \frac{50,000}{5} = \$ 10,000 \]<br /><br />Since the equipment has been depreciated for 4 years (from January 1, Year 1 to December 31, Year 4):<br />\[ \text{Total Accumulated Depreciation} = 10,000 \times 4 = \$ 40,000 \]<br /><br />### Step 2: Determine Book Value as of December 31, Year 4<br /><br />\[ \text{Book Value} = \text{Cost} - \text{Accumulated Depreciation} \]<br />\[ \text{Book Value} = 55,000 - 40,000 = \$ 15,000 \]<br /><br />### Step 3: Compare Sale Price with Book Value<br /><br />Sale price = \( \$ 20,000 \)<br />Book value = \( \$ 15,000 \)<br /><br />Since the sale price (\$20,000) is greater than the book value (\$15,000), there is a gain on the sale:<br />\[ \text{Gain on Sale} = 20,000 - 15,000 = \$ 5,000 \]<br /><br />### Step 4: Record the Journal Entry<br /><br />The journal entry to record the sale will include:<br />- Debit Cash for the sale price (\$20,000).<br />- Debit Accumulated Depreciation for the total accumulated depreciation (\$40,000).<br />- Credit Equipment for the original cost (\$55,000).<br />- Credit Gain on Sale for the gain (\$5,000).<br /><br />The correct journal entry is:<br />\[ \text{Debit Cash, } \$ 20,000 \]<br />\[ \text{Debit Accumulated Depreciation, } \$ 40,000 \]<br />\[ \text{Credit Equipment, } \$ 55,000 \]<br />\[ \text{Credit Gain on Sale, } \$ 5,000 \]<br /><br />Therefore, the correct answer is:<br />\[ \text{Debit Cash, } \$ 20,000; \text{ Debit Accumulated Depreciation, } \$ 40,000; \text{ Credit Equipment, } \$ 55,000; \text{ Credit Gain on Sale, } \$ 5,000. \]