During the current year, the Bobby Knight Company disposed of three different as

Question

During the current year, the Bobby Knight Company disposed of three different assets. On January 1 of the current year, prior to their disposal, the accounts reflected the following:

The machines were disposed of in the following ways:

  
a. Machine A: Sold on January 1 for $9,900 cash.

b. Machine B: Sold on December 31 for $10,825; received cash, $2,100, and a $8,725 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.

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1. Give all journal entries related to the disposal of each machine in the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

a. Machine A

b. Machine B

c. Machine C.

d. Explain the accounting rationale for the way that you recorded each disposal.

Asset Original
Cost Residual
Value Estimated
Life Accumulated
Depreciation
(straight line) Machine A $ 33,000 $ 3,000 8 years $ 22,500 (6 years) Machine B 53,000 4,000 8 years 36,750 (6 years) Machine C 75,500 6,600 17 years 48,635 (12 years) Record the disposal of Machine A Note: Enter debits before credits. Transaction General Journal Debit Credit

Explanation / Answer

Following are the journal entries

Transaction

General Journal

Debit

Credit

a) Machine A

Cash

$9,900

Accumulated Depreciation - Machine A

$22,500

Loss on Sale of Asset (Bal Fig)

$600

   Machine A

$33,000

b) Machine B

1)

Depreciation Expense

$6,125

Accumulated Depreciation – Machine B

$6,125

Cash

$2,100

Note Receivable

$8,725

Accumulated Depreciation - Machine B (36,750 + 6125)

$42,875

Gain on Sale of Asset (Bal Fig)

$700

Machine B

$53,000

c) Machine C

Accumulated Depreciation - Machine C

$48,635

Loss on Disposal of Asset (Bal fig)

$26,865

Machine C

$75,500

d)

Machine A = Loss

Machine B = Gain

Machine C = Loss

Transaction

General Journal

Debit

Credit

a) Machine A

Cash

$9,900

Accumulated Depreciation - Machine A

$22,500

Loss on Sale of Asset (Bal Fig)

$600

   Machine A

$33,000

b) Machine B

1)

Depreciation Expense

$6,125

Accumulated Depreciation – Machine B

$6,125

Cash

$2,100

Note Receivable

$8,725

Accumulated Depreciation - Machine B (36,750 + 6125)

$42,875

Gain on Sale of Asset (Bal Fig)

$700

Machine B

$53,000

c) Machine C

Accumulated Depreciation - Machine C

$48,635

Loss on Disposal of Asset (Bal fig)

$26,865

Machine C

$75,500

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