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4 September, 09:42

Diaz Company owns a milling machine that cost $125,300 and has accumulated depreciation of $90,600. Prepare the entry to record the disposal of the milling machine on January 3 under each of the following independent situations. The machine needed extensive repairs, and it was not worth repairing. Diaz disposed of the machine, receiving nothing in return. Diaz sold the machine for $16,100 cash. Diaz sold the machine for $34,700 cash. Diaz sold the machine for $40,300 cash.

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  1. 4 September, 13:01
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    Situation 1: Diaz sold the machine for $16,100 cash

    January 3

    Dr. Cash $16,100

    Dr. Loss on Disposal $18,600

    Dr. Accumulated Depreciation $90,600

    Cr. Machine $125,300

    Situation 2: Diaz sold the machine for $34,700 cash.

    January 3

    Dr. Cash $34,700

    Dr. Accumulated Depreciation $90,600

    Cr. Machine $125,300

    Situation 3: Diaz sold the machine for $40,300 cash

    January 3

    Dr. Cash $40,300

    Dr. Accumulated Depreciation $90,600

    Cr. Gain on Disposal $5,600

    Cr. Machine $125,300

    Explanation:

    Accumulated depreciation is the sum of all the depreciation charged against the asset. This contra asset value. The asset is reported on the balance sheet after adjusting this value.

    Situation 1:

    Machine is sold at loss, which is calculated as below

    Net Book value of Machine = $125,300 - $90,600 = $34,700

    $16,100 cash is received against the NBV of machine

    Loss on machine = $34,700 - $16,100 = $18,600

    Situation 2:

    Machine is sold at No gain no loss, which is calculated as below

    Net Book value of Machine = $125,300 - $90,600 = $34,700

    $34,700 cash is received against the NBV of machine, so there is no gain no loss on the disposal

    Situation 3:

    Machine is sold at gain, which is calculated as below

    Net Book value of Machine = $125,300 - $90,600 = $34,700

    $40,300 cash is received against the NBV of machine

    Loss on machine = $40,300 - $34,700 = $5,600
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