When a company sells a machine for \$15,000 in cash, which of the following journal entries correctly records the transaction (assuming the machine's book value is \$12,000)?

• A. Debit Equipment \$12,000; Credit Cash \$15,000; Debit Loss on Sale of Equipment \$3,000
• B. Debit Cash \$15,000; Credit Equipment \$15,000
• C. Debit Cash \$12,000; Credit Equipment \$15,000; Credit Gain on Sale of Equipment \$3,000
• D. Debit Cash \$15,000; Credit Equipment \$12,000; Credit Gain on Sale of Equipment \$3,000

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the transaction. The company is selling a machine for \$15,000 in cash, and the machine's book value is \$12,000. This means the company is receiving more cash than the book value, resulting in a gain on the sale.
2. Step 2: Identify the accounts involved. The accounts affected are Cash (increased by \$15,000), Equipment (decreased by \$12,000), and Gain on Sale of Equipment (increased by \$3,000).
3. Step 3: Determine the journal entry format. The journal entry must reflect the increase in Cash (debit), the decrease in Equipment (credit), and the recognition of the Gain on Sale of Equipment (credit).
4. Step 4: Apply the accounting equation. The equation Assets = Liabilities + Equity must remain balanced. Debiting Cash increases assets, crediting Equipment decreases assets, and crediting Gain on Sale increases equity.
5. Step 5: Write the journal entry. Debit Cash \$15,000, Credit Equipment \$12,000, and Credit Gain on Sale of Equipment \$3,000. This ensures the transaction is recorded correctly and reflects the gain from the sale.