Question

Recording Fixed Asset Disposal On April 1, 2020, one of the two large production machines used by Evert Company stripped a gear, causing major internal damage. On April 5, 2020, the company decided to purchase a new machine (cost of $146,000) so that production could continue. On January 1, the accounts showed the following for the old machine: original cost, $72,000; accumulated depreciation, $50,400 (20-year life; no residual value). The company did not accept a trade-in offer of $10,800. Instead, the old machine was sold on April 5 to another company for $19,200. Evert spent $2,400 cleaning and $800 moving the machine prior to shipping. Insurance premiums (prepaid) on the old machine were $360; the unused portion of the premium is applied to the new machine. That insurance was paid on January 1 and covered the period January 1 through December 31. a. Record the entry for Evert Company to purchase equipment on April 5, 2020. Account Name April 5, 2020 Equipment 146,000 Cash 146,000 Date Dr. Cr. ✓ b. Record the entries for Evert Company on April 5, 2020, to dispose of the old machine, including any required updates for depreciation and for insurance expense. Note: Round your answers to the nearest whole number. Note: Record debit accounts in alphabetical order using the first letter of the account name. Date Account Name Dr. Cr. April 5, 2020 Depreciation Expense 900 0 Accumulated Depreciation 900 To update depreciation. April 5, 2020 Insurance Expense 90 Prepaid Insurance 0 90 To record insurance, April 5, 2020 Accumulated Depreciation 51,300 0 Cash 19,200 x 0 Loss on Disposal 1,700 x Equipment 0 72,000 To record disposal.

Answer 1

Recording the Fixed Asset Disposal

a. Recording the entry for purchase of equipment on April 5, 2020:

Date	Account Name	Dr.	Cr.
Apr 5	Equipment	$146000
	Cash		$146000

b. Recording the entries for Evert company on April 5, 2020, to dispose the old machine, including required updates of depreciation and insurance expense.

Date	Account Name	Dr.	Cr.
April 5	Depreciation expense	$900
	Accumulated Depreciation		$900
	(To update depreciation)
April 5	insurance expense	$90
	Prepaid expense		$90
	(To record insurance expense)
April 5	Accumulated Depreciation	$51300
	Cash	$16000
	Loss on Disposal	$4700
	Equipment		$72000
	(To record the disposal)

*Depreciation expense (jan 1,2020 to April 5,2020)

= Depreciation expense per year × (3/12)

= (Cost of equipment/useful life) × (3/12)

= ($72000/20) × (3/12)

= $3600 × (3/12)

= $900

*Insurance expense (jan 1,2020 to April 5, 2020)

= prepaid insurance paid on jan1 × (3/12)

= $360 × (3/12)

= $90

*Accumulated Deprecition as on April 5, 2020

= Accumulated Dep. as on Jan 1 + Depreciation expense from jan1 to April 5

= $50400 + $900

= $51300

*Cash at the time of disposal

= Cash recived on disposal - clearing expense - moving expense

= $19200 - $2400 - $800

= $16000

*Cost of Old Equipment disposed (given)

= $72000

*Loss on Disposal

= Equipment cost - Accumulated depreciated - total net cash reciept

= $72000 - $51300 - $16000

= $4700

______×______

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