Question

During the current year, Martinez Company disposed of two different assets. On January 1, prior to their disposal, the accounts reflected the following: Asset Original Cost Residual Value Estimated Life Accumulated Depreciation (straight-line) Machine A $ 81,200 $ 7,400 15 years $ 63,960 (13 years) Machine B 25,000 3,000 8 years 16,500 (6 years) The machines were disposed of in the following ways: Machine A: Sold on January 2 for $25,000 cash. Machine B: On January 2, this machine was sold to a salvage company at zero proceeds (and zero cost of removal). Required: 1. & 2. Prepare the journal entries related to the disposal of Machine A and B on the January 2 of the current year. TIP: When no cash is received on disposal, the loss on disposal will equal the book value of the asset at the time of disposal. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Solution:

S.NO.             Accounts title and Explanations           Debit          Credit

1                                          Cash                                 $25,000

               Accumulated Depreciation- Machine A    $63,960

                               Gain on Dispose:                                            $10,400

                                      Machine A                                                $78,560

Accumulated Depreciation - Machine B                   $16,500

Loss on Disposal                                                          $10,700

                                       Machine B                                                $27,200

Note: -When the net value of the commodity disposed of is smaller than the amount paid, there is a benefit. If the worth of the book is MOT, there is a cost.