Question

E 9-7A.

Sale of Plant Asset

Raine Company has a machine that originally cost $58,000.  Depreciation has been recorded for four years using the straight-line method, with a $5,000 estimated salvage value at the end of an expected ten-year life.  After recording depreciation at the end of four years, Raine sells the machine.  Prepare the journal entry to record the machine's sale for:

a. $37,000 cash

b. $36,800 cash

c. $28,000 cash

Debit Account

Credit Account

Debit Amount

Credit Amount

a.

Debit Account

Credit Account

Debit Amount

Credit Amount

b.

Debit Account

Credit Account

Debit Amount

Credit Amount

c.

Answer 1

• Working

A	Cost	$            58,000.00
B	Residual Value	$              5,000.00
C=A - B	Depreciable base	$            53,000.00
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$              5,300.00

4 Year Accumulated Depreciation account balance = $ 5300 x 4 years = $ 21,200

Book Value at time of sale = $ 58000 – 21200 = $ 36,800

• Requirements

	Debit account	Credit account	Debit amount	Credit amount
a.	Cash		$37,000
	Accumulated Depreciation - machine		$21,200
		Gain on sale/disposal (37000 - 36800)		$200
		Equipment or Machine		$58,000
b	Cash		$36,800
	Accumulated Depreciation - machine		$21,200
		Equipment or Machine		$58,000
c	Cash		$28,000
	Accumulated Depreciation - machine		$21,200
	Loss on sale/disposal ($36800 - 28000)		$8,800
		Equipment or Machine		$58,000