Answer:
A. Loss - $27,153
B. Gain - $7,847
C. Loss - $12,153
Explanation:
Machine’s value = $(178,000+2,840+1,160)
= 182,000
Since the machine is placed on January 3, depreciation of first year will be of 363 days.
Depreciation at the end of 1st year = ((182,000-14,000)/6) × (363/365) = $27,847
Depreciation of each following Year= (182,000-14,000)/6 = $28,000
Total Depreciation at the end of fifth year= $27,847+(28,000×4) = $139,847
Therefore, Book Value of machine at the end of fifth year = $(182,000-139,847) = $42,153
REQUIREMENT - A:
Loss due to disposal of machine
= $(42,153-15,000) = $27,153
Journal entry:
Cash Dr 15,000
Loss Dr 27,153
Accumulated Depreciation Dr 139,847
Machine Cr 182,000
Loss from the sale of non-current asset is alwyas debit.
Requirement - B
Gain from the sale of machines = $(50,000-42,153) = $7,847
Journal Entry:
Cash Dr 50,000
Accumulated Depreciation Dr 139,847
Gain Cr 7,847
Machine Cr 182,000
Gain from the disposal of assets is an income, therefore it is credit. It is an other income. As the disposal occurs at a good cash value, there is a gain.
Requirement C:
Again, Book Value = $42,153,
Cash = $30,000
Loss from proceed from the sale of machine = $(42,153 - 30,000) = $12,153
Cash Dr 30,000
Loss Dr 12,153
Accumulated Depreciation Dr 139,847
Machine Cr 182,000
Loss from the sale of non-current asset is alwyas debit.
