MerryYacht International is a worldwide operator, franchisor, and licensor of hotels, residential, and timeshare properties totaling nearly $1.6 billion in net property and equipment. Assume that MerryYacht replaced furniture that had been used in the business for five years. The records of the company reflected the following regarding the sale of the existing furniture:

Furniture (cost) $ 6,060,000

Accumulated depreciation 5,553,000

Required:

1. Prepare the journal entry for the disposal of the furniture, assuming that it was sold for:

a. $507,000 cash

b. $1,619,000 cash

c. $414,000 cash

a. Assuming that the furniture was sold for $507,000 cash

Debit Cash $507,000

Debit Accumulated depreciation account $5,553,000

Credit Furniture asset $6,060,000

b. Assuming that the furniture was sold for $1,619,000 cash

Debit Cash $1,619,000

Debit Accumulated depreciation account $5,553,000

Credit Gain on asset disposal $1,112,000

Credit Furniture asset $6,060,000

c. Assuming that the furniture was sold for $414,000 cash

Debit Cash $414,000

Debit Accumulated depreciation account $5,553,000

Debit Loss on asset disposal $93,000

Credit Furniture asset $6,060,000

Explanation:

Carrying amount of the furniture = Cost of Furniture - Accumulated depreciation = $6,060,000 - $5,553,000 = $507,000

a. Assuming that the furniture was sold for $507,000 cash

Sale price - Carrying amount of the furniture = $507,000 - $507,000 = 0

The journal entry:

Debit Cash $507,000

Debit Accumulated depreciation account $5,553,000

Credit Furniture asset $6,060,000

b. Assuming that the furniture was sold for $1,619,000 cash

Sale price - Carrying amount of the furniture = $1,619,000 - $507,000 = $1,112,000 >0

The company records gain on disposal by the journal entry:

Debit Cash $1,619,000

Debit Accumulated depreciation account $5,553,000

Credit Gain on asset disposal $1,112,000

Credit Furniture asset $6,060,000

c. Assuming that the furniture was sold for $414,000 cash

Sale price - Carrying amount of the furniture = $414,000 - $507,000 = - $93,000 <0

The company records loss on disposal by the journal entry:

Debit Cash $414,000

Debit Accumulated depreciation account $5,553,000

Debit Loss on asset disposal $93,000

Credit Furniture asset $6,060,000