Question

Exercise 8-16 Disposal of assets LO P2 Diaz Company owns a machine that cost $125.900 and has accumulated depreciation of $90,400. Prepare the entry to record the disposal of the machine on January 1 in each seperate situation 1. The machine needed extensive repairs and was not worth repairing Diaz disposed of the machine, receiving nothing in return 2 Diaz sold the machine for $17,300 cash 3. Diaz sold the machine for $35,500 cash 4. Diaz sold the machine for $40,200 cash. View transaction list Journal entry worksheet

Answer 1

Cost of equipment = $125,900

Accumulated depreciation = $90,400

Book value of equipment = Cost of equipment - Accumulated depreciation

= $125,900 - $90,400

= $35,500

1.

Journal

January 1	Accumulated depreciation - Equipment	90,400
	Loss on disposal of equipment	35,500
	Equipment		125,900

2.

Sale price of equipment = $17,300

Loss on disposal of equipment = Book value of equipment - Sale price of equipment

= $35,500 - $17,300

= $18,200

Journal

January 1	Cash	17,300
	Accumulated depreciation - Equipment	90,400
	Loss on disposal of equipment	18,200
	Equipment		125,900

3.

Sale price of equipment = $35,500

Since Sale price of equipment is same as Book value of equipment, hence there is no loss or gain on disposal of equipment.

Journal

January 1	Cash	35,500
	Accumulated depreciation - Equipment	90,400
	Equipment		125,900

4.

Sale price of equipment = $40,200

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

= 40,200 - $35,500

= $4,700

Journal

January 1	Cash	40,200
	Accumulated depreciation - Equipment	90,400
	Equipment		125,900
	Gain on disposal of equipment		4,700

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