Selected accounts included in the property, plant, and equipment section of Faul

Question

Selected accounts included in the property, plant, and equipment section of Faulty Corporation's balance sheet at December 31, 2017, had the following balances: Land $ 400,000 Land improvements 130,000 Buildings 2,000,000 Machinery and equipment 800,000 During 2018, the following transactions occurred: >> A machine costing $18,000 on July 1, 2011, was scrapped on June 30, 2018. Straight-line depreciation had been recorded on the basis of a 10-year life with no salvage value. >> A machine was sold for $38,000 on July 1, 2018. Original cost of the machine was $74,000 on January 1, 2015, and it was depreciated on the sum-of-the-years' digits basis over an estimated useful life of eight years and a salvage value of $2,000.

a. Calculate the gain or loss on the disposal of each asset. Place your answer in the appropriate column.

Item

Amount of gain

Amount of loss

Scrapped machine on 6/30/18

Sale of machine on 7/1/18

b. Prepare the journal entries for the disposal & sale of the machine during 2018. Year 2018 depreciation has yet been recorded.

Date

Account

Debit

Credit

Item

Amount of gain

Amount of loss

Scrapped machine on 6/30/18

Sale of machine on 7/1/18

Explanation / Answer

July 1, 2011 Machine cost 18000 30 Junre 2018 7 years Depreciation 18000*7/10 12600 Carrying Value 18000-12600 5400 Loss of $ 5400 would be recognised

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