Question

In: Accounting

On Dec 31, 2019, XYZ Company sells a machine that originally cost $150,000 for $90,000 cash....

On Dec 31, 2019, XYZ Company sells a machine that originally cost $150,000 for $90,000 cash. The machine was placed in service on January 1, 2015.

It was depreciated using the straight-line method with an estimated salvage value of $25,000 and a useful life of 10 years.

Determine the profit or loss made on disposal of the machine and pass Journal Entry.

Expert Solution

Profit made on the disposal of the machine = $2,500 -->Refer working note

.

Journal Entry:
Date	Account Titles and Description	Debit	Credit
Dec.31, 2019	Cash	$90,000
	Accumulated depreciation [Refer working note - Marked in green colour]	$62,500
	Machinery		$150,000
	Gain on disposal of asset [Refer working note - Marked in green colour]		$2,500
	*To record sale of asset*

.

Working note:

Annual depreciation = (Cost – Salvage value) / Life of the asset

= ($150,000 – $25,000) / 10

= $12,500

.

The machine has been used for 5 years (from January 01, 2015 to December 31, 2019)

So,

Accumulated depreciation as on December 31, 2019 = $12,500 x 5 years = $62,500

.

Book value as on December 31, 2019 = Cost – Accumulated depreciation

= $150,000 – $62,500

= $87,500

.

Sale value of the asset = $90,000

.

Since the sale value is higher than the book value, the sale transaction resulted in a profit.

Therefore, Profit on disposal of the asset = Sale value – Book value

= $90,000 – $87,500

= $2,500

¨

ekkarill92 answered 2 years ago

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