The following are the transactions of Morrell Corporation: a. Morrell Corporatio

Question

The following are the transactions of Morrell Corporation: a. Morrell Corporation disposed of two computers at the end of their useful lives. The computers had cost $4,480 and their Accumulated Depreciation was $4,480. No residual value was received. b. Assume the same information as (a), except that Accumulated Depreciation, updated to the date of disposal, was $2,960.

Prepare journal entries to record above transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Record the disposal of computers that had cost $4,480 and their accumulated depreciation to the

ate of disposal was $4,480.

  Record the disposal of computers that had cost $4,480 and their accumulated depreciation to the date of disposal was $2,960.

Explanation / Answer

Solution:

Disposal of Computer / Assets – It involves the eliminating assets from the accounting records.

Journal Entry to record (a)

In part a, assets have been fully used during their life time & now has no residual value. Hence Computer needs to be fully disposed off from the accounting records.

Following Journal Entry is to be passed

Accumulated Depreciation A/c Dr. $4,480

To Computer A/c $4,480

(Being computer fully disposed off)

b. In this part Accumulated Depreciation on disposal date is only $2,960 and it means the computer was not fully used in their useful life. If computer is disposed of before using full…..it will cause a loss on disposal of computer $1,520 ($4,480 - $2,960) and it is recognized in Profit & Loss A/c as a expenses.

The following entry is to be passed to record disposal:

Accumulated Depreciation A/c Dr. $2,960

Loss on Disposal of Computer (P&L) Dr. $1,520

   To Computer A/c $4,480

(being computer disposed off and loss on disposal of computer recorded)

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