AC116 Unit 6 Asset Disposal Problem Example

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A truck sold midyear, a forklift traded in and warehouse racking retired are the three disposals worked in this AC116 Unit 6 asset disposal problem at a composite company that supplies orchards and vineyards. Purdue Global AC 116, Accounting II, uses disposals to catch students who skip the depreciation still owed, and BS in Accounting students must bring each asset current before removing it. Ridgeline's truck takes a $3,000 catch-up and sells for $16,500 against a $17,000 book value, a $500 loss. The old forklift takes $1,000 of catch-up and is traded at its $4,200 fair value toward the $46,000 forklift from Unit 5, an $800 loss under commercial substance. The racking is retired with a $900 loss. A section shows how skipping the catch-up misstates two income statement lines.

CourseAC116 Accounting II
UnitUnit 6
Paper typeAsset disposal problem
LengthAbout 630 words, 5 pages double-spaced
FormatAPA 7 student paper
SchoolPurdue University Global
ProgramBS in Accounting
UpdatedOctober 2026

Free sample paper for AC116 Unit 6

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Depreciation First, Then the Disposal: A Unit 6 Problem on a Truck Sold, a Forklift Traded and Racking Retired

[Student Name]

Purdue University Global

AC116: Accounting II

Unit 6 Asset Disposal Problem

[Instructor Name]

[Date]

Ridgeline Orchard Supply, Inc., its assets and figures are composite; the textbook and the two standards cited are real.

What this part is doingListing the three disposals and the order of steps in the lead shows the problem addresses the catch-up the unit is designed to test.
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Disposal 1: Delivery Truck Sold, July 1

Computation:

1. Cost: $38,000.

2. Accumulated depreciation at January 1: three years at $6,000, or $18,000. The truck is depreciated straight line over five years to an $8,000 salvage value.

3. Depreciation for January through June: $6,000 times 6/12 equals $3,000.

4. Book value on July 1: $38,000 minus $21,000 equals $17,000.

Catch-up entry. July 1. Depreciation Expense, debit $3,000; Accumulated Depreciation, Truck, credit $3,000.

Disposal entry. July 1. Cash, debit $16,500; Accumulated Depreciation, Truck, debit $21,000; Loss on Disposal of Equipment, debit $500; Truck, credit $38,000.

The truck sold for $16,500 against a book value of $17,000, a loss of $500.

Disposal 2: Old Forklift Traded In, April 1

Computation:

1. Cost: $30,000.

2. Accumulated depreciation at January 1: six years at $4,000, or $24,000, straight line over seven years to a $2,000 salvage value.

3. Depreciation for January through March: $4,000 times 3/12 equals $1,000.

4. Book value on April 1: $30,000 minus $25,000 equals $5,000.

Trade terms: the dealer gave a $4,200 allowance, equal to the old forklift's fair value, toward a new forklift, and Ridgeline paid $41,800 in cash.

Catch-up entry. April 1. Depreciation Expense, debit $1,000; Accumulated Depreciation, Forklift, credit $1,000.

Exchange entry. April 1. Forklift, new, debit $46,000; Accumulated Depreciation, Forklift, debit $25,000; Loss on Disposal of Equipment, debit $800; Forklift, old, credit $30,000; Cash, credit $41,800.

Ridgeline books the new machine at what it surrendered in value, $4,200 for the old machine plus $41,800 in cash, or $46,000. Because the exchange has commercial substance, a new machine with different capacity and cash flows, the loss is recognized now rather than folded into the new asset's cost (Financial Accounting Standards Board, 2004). The old forklift was worth $4,200 but carried at $5,000, so the loss is $800.

Disposal 3: Pallet Racking Retired, December 31

Computation:

1. Cost: $9,000.

2. Accumulated depreciation at December 31, after this year's $900: $8,100.

3. Book value: $900.

Retirement entry. Dec. 31. Accumulated Depreciation, Racking, debit $8,100; Loss on Disposal of Equipment, debit $900; Racking, credit $9,000.

No proceeds were received; the racking was bent beyond repair and hauled away. The whole remaining book value becomes the loss.

In each block the catch-up entry comes first, because removing an asset with accumulated depreciation that stops at January 1 would overstate its book value and turn part of a year's depreciation into a smaller loss or a false gain.

What this part is doingThe highlighted sentence explains why the catch-up entry must precede the disposal, the step the unit is designed to catch.
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Why Order Matters

Had the truck been removed on July 1 using only the January balance of $18,000, its book value would have appeared to be $20,000 and the loss $3,500. Total expense would be the same, but $3,000 of depreciation would be misreported as a loss on disposal, misstating both lines on the income statement (Franklin et al., 2019).

Summary for the Year

Depreciation catch-up: $3,000 plus $1,000 equals $4,000. Losses on disposal: $500 plus $800 plus $900 equals $2,200. Cash received from disposals: $16,500. The new forklift enters the books at $46,000 and is depreciated from April 1, as scheduled in Unit 5. On the statement of cash flows, the $16,500 appears under investing activities and the $2,200 of losses is added back to net income, because recording a loss on disposal moves no money. For the tax return, each gain or loss is measured from the asset's tax basis, which reflects tax depreciation and can differ from the book figures here (Internal Revenue Service, 2025).

What this part is doingConnecting the disposals to the cash flow statement prepares for the final unit and shows the student sees the course as connected.
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References

Financial Accounting Standards Board. (2004). Exchanges of nonmonetary assets: An amendment of APB Opinion No. 29 (Statement of Financial Accounting Standards No. 153). https://www.fasb.org

Franklin, M., Graybeal, P., & Cooper, D. (2019). Principles of accounting, volume 1: Financial accounting. OpenStax. https://openstax.org/details/books/principles-financial-accounting

Internal Revenue Service. (2025). How to depreciate property (Publication 946). https://www.irs.gov/publications/p946

AC116 Unit 6 instructions, in plain terms

The sixth AC116 unit gives one or more asset disposals and asks for the entries. For each disposal, first compute depreciation from the start of the year to the disposal date and record it. Then compute book value and record the disposal: debit cash for any proceeds, debit accumulated depreciation for its updated balance, credit the asset for its original cost, and balance with a gain or loss. For a trade-in, record the new asset at the fair value given up plus cash paid when the exchange has commercial substance. A retirement with no proceeds produces a loss equal to remaining book value. Label each block clearly. A summary of the year's losses and cash received helps. Two pages usually covers it; cite the exchange standard in APA 7 if you explain commercial substance.

How this AC116 Unit 6 example is built

The sample presents three blocks. The truck block computes cost, accumulated depreciation at January 1, six months of catch-up and book value, then records the catch-up and the sale with a $500 loss. The trade-in block brings the old forklift current, explains the dealer's $4,200 allowance and the $41,800 cash paid, records the new forklift at $46,000 and recognizes an $800 loss, citing the nonmonetary exchange standard. The retirement block removes the racking with a $900 loss. The highlighted sentence explains why the catch-up comes first. A section shows how skipping it would turn depreciation into an inflated loss. A summary totals catch-up, losses and proceeds and links them to the cash flow statement.

AC116 Unit 6 rubric: what earns full points

Disposal problems are graded on the catch-up entry, the disposal entry and the gain or loss. Graders check first whether depreciation was brought to the disposal date. Removing the asset at original cost and accumulated depreciation at its updated balance is required. Gains and losses must be measured against book value, not cost. Trade-ins are checked for the new asset's recorded cost and the treatment of the gain or loss. Retirements must show the remaining book value as a loss. Clear labeled blocks help graders award partial credit. The final points cover correct entries throughout and an APA 7 source wherever a standard is invoked.

AC116 Unit 6 help: mistakes that cost points

The most frequent disposal error is skipping the partial-year depreciation, which overstates book value and misreports the loss or gain. Others remove the asset at its book value instead of its cost. Trade-ins are recorded at the new asset's list price rather than the fair value given up plus cash. The loss on a retirement is forgotten because no cash changed hands. Accumulated depreciation is left on the books after the asset is gone. Gains are credited to revenue. If your disposals involve trade-ins or mid-year dates and the entries will not balance, a writer can work each block from your problem.

Get an AC116 Unit 6 example written to your instructions

Dates are what this problem turns on, so send the disposal dates, proceeds and trade-in terms from Unit 6 along with the depreciation method already in use, the instructions and the rubric. Worked blocks for each disposal return inside 24-48h, catch-up entries included. The first custom sample is free and uses your section's figures rather than a textbook's. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.

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AC116 Unit 6 questions, answered

What if the asset is sold on the first day of the year?

Then no catch-up entry is needed, because the prior year-end adjustment already brought accumulated depreciation current. The sample still shows the four-line computation with a zero on the current-year line, so the question visibly received attention rather than being skipped. Problems in AC116 sometimes set one disposal on the first day of the year for exactly that reason.

Is a trade-in gain always recognized?

At this level, most AC116 problems assume the exchange has commercial substance, meaning future cash flows change as a result, and then the gain or loss is recognized in full. Where a problem states that the exchange lacks commercial substance, gains are generally deferred into the new asset's cost instead, while losses are still recognized. The sample follows the assumption the problem makes and names it.

Where does the gain or loss appear on the income statement?

Below operating income in most textbook formats, under other revenues and gains or other expenses and losses, because selling equipment is not the business's main activity. The sample's closing sentences place each result there and note that a large gain can make a weak operating year look stronger than it was, which is the interpretive point many rubrics reward.

Where can I find a free AC116 Unit 6 sample paper?

A complete AC116 Unit 6 asset disposal problem is on this page, covering a truck sale, a forklift trade-in and a racking retirement, each with catch-up depreciation and its loss.

How is the new forklift recorded in the AC116 Unit 6 sample?

At the fair value given up: the old forklift's $4,200 trade-in value plus $41,800 of cash, or $46,000. The $800 difference between the old forklift's $5,000 book value and its fair value is a loss.