PB9-2 Recording and Interpreting the Disposal of Long-Lived Assets [LO 9-5] During the current year, Rayon Corporation disposed of two different assets. On January 1, prior to their disposal, the accounts reflected the following: Asset Original Cost Residual Value Estimated Life Accumulated Depreciation (straight-line) Machine A $ 60,000 $ 11,000 7 years $ 28,000 (4 years) Machine B 14,200 1,925 5 years 7,365 (3 years) The machines were disposed of in the following ways: Machine A: Sold on January 2, for $33,500 cash. Machine B: On January 2, this machine was sold to a salvage company at zero proceeds (and zero cost of removal). Required: 1.&2. Give the journal entries related to the disposal of Machine A and Machine B on January 2 of the current year. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Machine A entries

Debit Other income/disposal account (p/l) $60,000

Credit Asset account $60,000

Being entries to derecognize the cost of the Machine A

Debit Accumulated depreciation account $28,000

Credit Other income/disposal account (p/l) $28,000

Being entries to derecognize the accumulated depreciation on Machine A

Debit Cash account $33,500

Credit Other income/disposal account (p/l) $33,500

Being entries to record the amount received from the disposal of machine A

Machine B entries

Debit Other income/disposal account (p/l) $14,200

Credit Asset account $14,200

Being entries to derecognize the cost of the Machine B

Debit Accumulated depreciation account $7,365

Credit Other income/disposal account (p/l) $7,365

Being entries to derecognize the accumulated depreciation on Machine B

Explanation:

When the amount received from the disposal of an asset is higher than the carrying value of the asset, the company makes a gain on disposal. The proceed from the disposal of an asset may be recorded in the disposal or other income account.

On disposal, the carrying amount of the asset is derecognized by

Debit Other income/disposal account (p/l)

Credit Asset account

with the cost of the asset, then,

Debit Accumulated depreciation account

Credit Other income/disposal account (p/l)

With the accumulated depreciation of the asset at the date of disposal,

Furthermore,

Debit Cash account

Credit Other income/disposal account (p/l)

with the amount received from the disposal or sale of the asset