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9 November, 15:27

Diaz Company owns a machine that cost $125,200 and has accumulated depreciation of $93,100. Prepare the entry to record the disposal of the machine on January 1 in each seperate situation. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return. Diaz sold the machine for $16,400 cash. Diaz sold the machine for $32,100 cash. Diaz sold the machine for $41,300 cash.

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  1. 9 November, 17:10
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    1. Loss on sale of machine = $15,700

    2. No Loss or Gain

    3. Gain = $9,200

    Explanation:

    Requirement 1

    If Diaz Company disposed the machine with a cash of $16,400, the journal entry to record the transaction of disposal of machine will be as follows:

    January 1 Cash Debit $16,400

    Accumulated depreciation Debit $93,100

    Loss on sale of machine Debit $15,700

    Machine Credit $125,200

    Calculation:

    Book value of the machine = Purchase price - Accumulated depreciation = $ (125,200 - 93,100) = $32,100

    We know, loss on sale of machine = Book value of the machine - Sale price = $ (32,100 - 16,400) = $15,700. Loss is a debit as it is an expense.

    Requirement 2

    If Diaz Company disposed the machine with a cash of $32,100, the journal entry to record the transaction of disposal of machine will be as follows:

    January 1 Cash Debit $32,100

    Accumulated depreciation Debit $93,100

    Machine Credit $125,200

    Calculation:

    Book value of the machine = Purchase price - Accumulated depreciation = $ (125,200 - 93,100) = $32,100

    We know, Gain (Loss) on sale of machine = Book value of the machine - Sale price = $ (32,100 - 32,100) = $0. As the book value and the disposal value are same, there is no loss and no gain.

    Requirement 3

    If Diaz Company disposed the machine with a cash of $41,300, the journal entry to record the transaction of disposal of machine will be as follows:

    January 1 Cash Debit $41,300

    Accumulated depreciation Debit $93,100

    Gain on sale of machine Credit $9,200

    Machine Credit $125,200

    Calculation:

    Book value of the machine = Purchase price - Accumulated depreciation = $ (125,200 - 93,100) = $32,100

    We know, Gain on sale of machine = Sale price - Book value of the machine = $ (41,300 - 32,100) = $9,200. Gain is a credit as it shows as the income.
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