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4 August, 18:57

Marionnette International is a worldwide operator and franchisor of hotels and related lodging facilities totaling nearly $1.6 billion in net property and equipment. Assume that Marionnette replaced furniture that had been used in the business for five years. The records of the company refilected the following regarding the sale of the existing furniture.

Furniture (cost) $6,060,000

Accumulated depreciation 5,551,000

Required:

1. Prepare the journal entry for the disposal of the furniture, assuming that it was sold for: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars not in millions.)

a. $509,000 cash

b.$1,619,000 cash

c.$407,000 cash

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Answers (1)
  1. 4 August, 20:06
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    Answer: The following journal entries apply in each of the scenarios:

    (a) If the furniture was sold for $509,000 cash,

    Debit ($) Credit ($)

    Accumulated depreciation 5,551,000

    Furniture (cost) 6,060,000

    Cash (sale proceeds) 509,000

    (Being entries to record disposal of furniture at the net book value)

    (b) If the furniture was sold for $1,619,000 cash,

    Debit ($) Credit ($)

    Accumulated depreciation 5,551,000

    Furniture (cost) 6,060,000

    Gain on disposal of asset 1,110,000

    Cash (sale proceeds) 1,619,000

    (Being entries to record disposal of furniture)

    (c) If the furniture was sold for $407,000 cash,

    Debit ($) Credit ($)

    Accumulated depreciation 5,551,000

    Furniture (cost) 6,060,000

    Loss on disposal of asset 102,000

    Cash (sale proceeds) 407,000

    (Being entries to record disposal of furniture)

    Explanation: Normally, most organizations dispose their assets using the net book value (cost minus the accumulated depreciation) to determine the price to sell the assets. So, most of them do not intend to sell below the NBV, they usually add margins to make profit except in certain other considerations. To recognize the disposal, the cost (asset account) has to be credited while the accumulated depreciation has to be debited. Of course the sales proceed goes into your cash account as receipt (debit), then the difference between the sales proceed and the NBV is either a gain on disposal or loss.
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