Answer:
a.
The entry Riverbed would make:
Debit Cash $27,240
Debit Accumulated depreciation account $30,240
Credit Gain on asset disposal $3,480
Credit Machine asset $54,000
b.
The entry:
Debit Cash $17,240
Debit Accumulated depreciation account $30,240
Debit Loss on asset disposal $6,520
Credit Machine asset $54,000
Explanation:
Companies frequently sell plant assets to dispose them. To recognize gain or loss on disposal:
First, the company calculates the carrying amount of the asset by using the original cost of the asset, minus all accumulated depreciation and any accumulated impairment charges.
Then, subtract this carrying amount from the sale price of the asset. If the remainder is positive, it is a gain and if the remainder is negative, it is a loss
In Riverbed Company, the carrying amount of the machine = $54,000 - $30,240 = $23,760
a. Sale price - Carrying amount of the asset = $27,240 - $23,760 = $3,480
=> The company recognizes gain on disposal $3,480
The entry should be made:
Debit Cash $27,240
Debit Accumulated depreciation account $30,240
Credit Gain on asset disposal $3,480
Credit Machine asset $54,000
b. Sale price - Carrying amount of the asset = $17,240 - $23,760 = -$6,520
=> The company recognizes loss on disposal $6,520
The entry:
Debit Cash $17,240
Debit Accumulated depreciation account $30,240
Debit Loss on asset disposal $6,520
Credit Machine asset $54,000
