Question

During the current year, Merkley Company disposed of three different assets. On January 1 of the current year, prior to the disposal of the assets, the accounts reflected the following:Asset Original Cost Residual Value Estimated Life Accumulated Depreciation (straight line)Machine A $21,000 $3,000 8 years $15,750 (7 years)Machine B 50,000 4,000 10 years 36,800 (8years)MachineC 85,000 5,000 15 years 64,000 (12 years)The machines were disposed of during the current year in the following ways:a. Machine A: Sold on January 1 for $5,000 cash.b. Machine B: Sold on December 31 for $10,500; received cash, $2,500, and an $8,000 interest-bearing (12 percent) note receivable due at the end of 12 months.c. Machine C: On January 1, this machine suffered irreparable damage from an accident. On January 10, a salvage company removed the machine at no cost.Prepare journal entries for the above transactions.

Answer 1

Answer:

See attached picture for detailed answer.

Explanation:

See attached picture.

Answer 2

Answer:

Merkley Company

Journal Entries

1. Disposal of Machine A

January 01

Cash                                                           Debit         $ 5,000

Accumulated  depreciation                      Debit         $ 15,750

Equipment                                                 Credit                            $ 18,000

Gain in sale of equipment                        Credit                            $   2,750

To record sale of Machine A for  cash and the resultant gain on disposal

3, Depreciation expense fro Machine B

December 31

Depreciation expense                              Debit        $ 4,600

Accumulated depreciation                      Credit                             $ 4,600

To record depreciation expense on machine B for the year - disposal date

4. Disposal of Machine B

December 31

Cash                                                           Debit      $  2,500

Notes Receivable                                      Debit      $  8,000

Accumulated Depreciation                       Debit      $ 41,400

Equipment                                                  Credit                           $ 50,000

Gain in sale of equipment                         Credit                           $    1,900

To record disposal of machine B for cash and notes receivable and to record the gain on disposal

January 01

4. Disposal of Machine C

Accumulated Depreciation                       Debit       $ 64,000

Loss on disposal of equipment                 Debit       $ 21,000

Equipment                                                   Credit                           $ 85,000

To record disposal of Machine C and the loss on disposal

Explanation:

Computation of gain/ loss for Disposal of Machine A

The equipment was sold on January 01, so no depreciation for the year needs to be recorded

Cost of equipment                                                                  $ 18,000

Accumulated depreciation                                                     $ 15,750

Net Book Value of Machine A on  date of disposal              $ 2,250

Sale value in cash                                                                    $ 5,000

Gain on disposal                                                                       $ 2,750

Computation of depreciation expense of Machine B

The equipment was sold on December 31, so  depreciation for the year needs to be recorded

Cost of equipment                                                                  $ 50,000

Salvage value                                                                          $ ( 4,000)

Depreciable value                                                                   $ 46,000

Estimated useful life                                                                 10 years

Annual depreciation expenses                                               $ 4,600

Computation of gain/ loss on disposal of Machine B

Cost of equipment                                                                  $ 50,000

Accumulated depreciation - Opening     $ 36,800

Depreciation of the year                            $  4,600             $ (41,400)

Net book value -  Date of disposal                                         $ 8,600

Sale value in cash + note receivable                                      $ 10.500

Gain on disposal                                                                       $ 1,900

Accumulated depreciation                                                     $ 15,750

Net Book Value of Machine A on  date of disposal              $ 2,250

Sale value in cash                                                                    $ 5,000

Gain on disposal                                                                       $ 2,750

Computation of gain/ loss for Disposal of Machine C

The equipment was disposed on January 01, so no depreciation for the year needs to be recorded

Cost of equipment                                                                  $ 85,000

Accumulated depreciation                                                     $ 64,000

Net Book Value of Machine C on  date of disposal              $ 21,000

Disposal value                                                                           $        0

Loss on disposal                                                                       $ 21,000