Question

Problem 8 (18 pts) Prepare the necessary journal entries to record the following transactions in 2017 for the Manufacturing Company. April 1 Discarded old factory equipment that originally cost $600,000 and had a book value of $55,000 on the date of disposal. Assume depreciation on the equipment has already been recorded for the current year. May 31 Sold a truck for $7,000. The truck originally cost $40,000 and had accumulated depreciation of $35,000 on the date of sale. Assume the depreciation on the truck has already been recorded for the current year. Oct. 11 Sold a drill press for $25,000. The drill press originally cost $100,000 and had accumulated depreciation of $80,000 on the date of sale. Assume the depreciation on the drill press has already been recorded for the current year.

Answer 1

Journal

April 1	Accumulated depreciation - Equipment	545,000
	Loss on disposal of equipment	55,000
	Equipment		600,000
May 31	Cash	7,000
	Accumulated depreciation - Equipment	35,000
	Equipment		40,000
	Gain on disposal of equipment		2,000
Oct. 11	Cash	25,000
	Accumulated depreciation - Equipment	80,000
	Equipment		100,000
	Gain on disposal of equipment		5,000

i)

Book value of equipment = $55,000

Since the equipment was discarded, Loss on disposal of equipment is same as Book value of equipment

ii)

Book value of truck = Cost price - Accumulated depreciation

= 40,000 - 35,000

= $5,000

Gain on disposal of truck = Sale price of truck - Book value of truck

= 7,000 - 5,000

= $2,000

iii)

Book value of Drill press = Cost price - Accumulated depreciation

= 100,000 - 80,000

= $20,000

Gain on disposal of Drill press = Sale price of Drill press - Book value of Drill press

= 25,000 - 20,000

= $5,000

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