Question

3. Prepare journal entries to record the machine’s disposal under each separate situation: (a) it is sold for $23,000 cash; (b) it is sold for $92,000 cash; and (c) it is destroyed in a fire and the insurance company pays $33,500 cash to settle the loss claim.

Answer 1

Answer:

A)  It is sold for $23,000 cash.

Cash                                                          = dr $23,000

Accumulated Depreciation - Machinery = dr $221,200

Loss on sale of Machinery                       = dr $55,800

Machinery                                                                                = cr $300,000

B)  It is sold for $92,000 cash.

Cash                                                          = dr $92,000

Accumulated Depreciation - Machinery = dr $221,200

Gain on sale of Machinery                                                    = cr $13,200

Machinery                                                                               = cr $300,000

C)  Destroyed in fire.

Cash                                                          = dr $33,500

Accumulated Depreciation - Machinery = dr $221,200

Loss from fire                                            = dr $45,300

Machinery                                                                               = cr $300,000

Explanation:

All the account titles and explanations should be classified into debit (dr) or credit (cr) depending on the case scenario.

The machine in use over a space of time depreciates at $221,200 and it was bought for $300,000

Answer 2

Answer: (a)Dr: Cash $23,000, Cr : Machine $23,000, (b) Dr : Cash $92,000, Cr : Machine $92,000, (c) Dr: insurer $33,500, Cr: Machine $33,500

Explanation:

(a) The journal entry will be

Dr: Cash $23,000

Cr : Machine(Asset) $23,000

(b) The journal entry will be

Dr: Cash $92,000

Cr: Machine (Asset) $92,000

(c) The journal entry will be

Dr: insurer $33,500

Cr Machine( Asset ) $33,500