Question

Diaz Company owns a machine that cost $126,500 and has accumulated depreciation of $94,000. 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 $15,900 cash.
3. Diaz sold the machine for $32,500 cash.
4. Diaz sold the machine for $41,600 cash.

Answer 1

Book value of the machine = Cost - Accumulated Depreciation

Book value = $126500 - $94000 = $32500

Now, we calculate the gain or loss on disposal of the machine under each case separtely:

(1) Machine disposed off receiving nothing:

Gain (or loss) on disposal = Sale proceeds - Book value

Gain (or loss) on disposal = $0 - $32500 = - $32500

Required journal entries are:

S. No.	General Journal	Debit	Credit
1	Accumulated depreciation	$94000
	Loss on disposal	$32500
	Machine		$126500
	(for machine disposed off at nil value)

(2) Sold machine for $15900 cash:

Gain (or loss) on disposal = Sale proceeds - Book value

Gain (or loss) on disposal = $15900 - $32500 = - $16600

Required journal entries are:

S. No.	General Journal	Debit	Credit
2	Accumulated depreciation	$94000
	Cash	$15900
	Loss on disposal	$16600
	Machine		$126500
	(for machine disposed off and cash realised)

(3) Sold machine for $32500 cash:

Gain (or loss) on disposal = Sale proceeds - Book value

Gain (or loss) on disposal = $32500 - $32500 = $0

Required journal entries are:

S. No.	General Journal	Debit	Credit
3	Accumulated depreciation	$94000
	Cash	$32500
	Machine		$126500
	(for machine disposed off and cash realised)

(4) Sold machine for $41600 cash:

Gain (or loss) on disposal = Sale proceeds - Book value

Gain (or loss) on disposal = $41600 - $32500 = $9100

Required journal entries are:

S. No.	General Journal	Debit	Credit
4	Accumulated depreciation	$94000
	Cash	$41600
	Gain on disposal		$9100
	Machine		$126500
	(for machine disposed off and cash realised)