Answer:
a. Gain = $9,875
b. The Journal entry is shown below:-
Explanation:
a. The computation of amount of the gain or loss to be recognized by Coronado Co. is shown below:-
For computing the gain or loss first we need to follow some steps which is here below:-
Depreciation per year under SLM = (Cost of the asset - Salvage value) ÷ Life of the asset
= ($115,000 - $20,000) ÷ 10
= $95,000 ÷ 10
= $9,500
Depreciation from 2016 to 2020 = Depreciation per year under SLM × 5 years
= $9,500 × 5
= $47,500
Here, the machine is sold on April 3 2021 .So we will compute the 3 month depreciation for 2021
Depreciation for 2021 = Depreciation per year under SLM × 3 months ÷ Number of months in a year
= $9,500 × 3 ÷ 12
= $2,375
Accumulated Depreciation = Depreciation from 2016 to 2020 + Depreciation for 2021
= $47,500 + $2,375
= $49,875
Book value = Costs - Accumulated Depreciation
= $115,000 - $49,875
= $65,125
Fair value = $60,000 + $15,000
= $75,000
Gain = Fair value - Book value
= $75,000 - $65,125
= $9,875
b. The Journal entry is shown below:-
1. Depreciation expenses Dr, $2,375
($9,500 × 3 ÷ 12)
To accumulated depreciation $2,375
(Being depreciation is recorded)
2. Cash Dr, $15,000
Machinery Dr, $60,000
Accumulated depreciation Dr, $49,875
To Machinery $115,000
To Gain on disposal $9,875
(Being Old equipment exchanged with new and receipt of cash is recorded)
