Question

On January 2, 2017, Bering Co. disposes of a machine costing $44,000 with accumulated depreciation of $24,625. Prepare the entries to record the disposal. under each of the following separate assumptions. 1.The machine is sold for $18,250 cash.2.The machine is traded in for a newer machine having a $60,200 cashprice. A $25,000 trade-in allowance is received, and the balance is paidin cash. Assume the asset exchange has commercial substance.3.The machine is traded in for a newer machine having a $60,200 cashprice. A $15,000 trade-in allowance is received, and the balance is paidin cash. Assume the asset exchange has commercial substance.

Answer 1

Answer:

Scenario 1: Loss on Disposal of $1,125

Scenario 2: Gain on Disposal of $5,625  

Scenario 3: Loss on Disposal of $4,375

Explanation:

Scenario 1

                                                                      Debit           Credit  

Debit Cash Received                                       $18,250  

Debit Accumulated Depreciation                      $24,625  

Debit Loss on Disposal (Balancing Figure)      $1,125  

Credit Machine at Cost                                                        $44,000  

(To record disposal of Machine for Cash)

Scenario 2

                                                                      Debit           Credit  

Debit New Machine - Trade in Allowance      $25,000  

Debit Accumulated Depreciation                      $24,625  

Credit Gain on Disposal (Balancing Figure)                        $5,625  

Credit Machine at Cost                                                        $44,000  

(To record disposal of Machine with Trade in Allowance)

Debit New Machine at Cost                           $60,200  

Credit Trade in Allowance                                           $25,000  

Credit Cash                                                                    $35,200  

(To record acquisition of New Machine)

Scenario 3

                                                                      Debit           Credit  

Debit New Machine - Trade in Allowance    $15,000  

Debit Accumulated Depreciation                    $24,625  

Debit Loss on Disposal (Balancing Figure)    $4,375  

Credit Machine at Cost                                                       $44,000  

(To record disposal of Machine with Trade in Allowance)

Debit New Machine at Cost                           $60,200  

Credit Trade in Allowance                                             $15,000  

Credit Cash                                                                      $45,200  

(To record acquisition of New Machine)