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Ly Company disposed of two different assets. On January 1, prior to their disposal, the accounts reflected the following: Asset Original Cost Residual Value Estimated Life Accumulated Depreciation (straight-line) Machine A $ 31,000 $ 3,100 6 years $ 23,250 (5 years) Machine B 60,200 3,500 15 years 45,360 (12 years) The machines were disposed of in the following ways: Machine A: Sold on January 1 for $8,700 cash. Machine B: On January 1, this machine was sold to a salvage company at zero proceeds (and zero cost of removal). Required: 1. & 2. Prepare the journal entries related to the disposal of Machine A and B at the beginning of the current year.

Respuesta :

Zviko

Answer:

Machine A

Cash $8,700 (debit)

Accumulated Depreciation  $ 23,250 (debit)

Profit on Sale of Machine $ 950 (credit)

Cost $ 31,000 (credit)

Machine B

Accumulated Depreciation  $ 45,360 (debit)

Loss on Sale of Machine $ 14,840 (credit)

Cost $ 60,200 (credit)

Explanation:

On disposal or sale of Property, Plant and Equipment Item, the following should be take place:

  1. De-recognise the Cost of the asset
  2. De-recognise the Accumulated depreciation to date
  3. Recognise the Proceeds from such sale (if any)
  4. Recognise the Profit or Loss on Sale on the PPE item on Income Statement
anthougo

Ly Company's Journal Entries related to the disposal of Machine A and Machine B are as follows:

Debit Sale of Machine A $31,000

Credit Machine A $31,000

  • To transfer Machine A to Sale of Machine A account.

Debit Sale of Machine B $60,200

Credit Machine B $60,200

  • To transfer Machine B to Sale of Machine B account.

Debit Accumulated Depreciation $23,250

Credit Sale of Machine A $23,250

  • To transfer Accumulated Depreciation to Sale of Machine A.

Debit Accumulated Depreciation $45,360

Credit Sale of Machine B $45,360

  • To transfer Accumulated Depreciation to Sale of Machine B.

Debit Cash $8,700

Credit Sale of Machine A $8,700

  • To record the cash proceeds from sale of Machine A.

Debit Cash $0

Credit Sale of Machine B $0

  • To record the zero proceeds from disposal of Machine B.

Data and Calculations:

Asset           Original   Residual    Estimated    Accumulated

                      Cost          Value          Life       Depreciation (straight-line)

Machine A $ 31,000   $ 3,100       6 years       $ 23,250 (5 years)

Machine B   60,200     3,500      15 years          45,360 (12 years)

Jan. 1: Cash $8,700 Sale of Machine A $8,700

Jan. 1: Cash $0 Sale of Machine B $0

Journal Analysis:

Sale of Machine A $31,000  Machine A $31,000

Sale of Machine B $60,200 Machine B $60,200

Accumulated Depreciation $23,250 Sale of Machine A $23,250  

Accumulated Depreciation $45,360 Sale of Machine B $45,360

Cash $8,700 Sale of Machine A $8,700

Cash $0 Sale of Machine B $0

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