Ly Company 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 $ 36,000 $ 3,900 5 years $ 25,680 (4 years) Machine B 68,200 4,500 14 years 50,050 (11 years) The machines were disposed of in the following ways: Machine A: Sold on January 1 for $10,800 cash. Machine B: On January 1, this machine was sold to a salvage company at zero proceeds (and zero cost of removal).

Prepare the journal entries related to the disposal of Machine A and B at the beginning of the current year.

The journal entries related to the disposal of Machine A and B at the beginning of the current year.

Machine A:

Debit Accumulated depreciation                 $25,680

Debit Cash (sales proceed)                          $10,800

Credit Asset (Machine cost)                         $36,000

Credit Gain on disposal                                     $480

(To record disposal of Machine A)

Machine B:

Debit Accumulated depreciation                $50,050

Debit Cash (sales proceed)                                   $0

Debit Loss on disposal                                  $18,150

Credit Asset (Machine cost)                        $68,200

(To record disposal of Machine B)

Explanation:

Machine A: Using straight-line depreciation method = (Cost - Residual Value) / Useful life: ($36,000 - $3,900) / 5 years = $6,420/year

$6,420/year x 4 years = $25,680

The net book value of the asset is $36,000 - $25,680 = $10,320. Gain on disposal is $10,800 - $10,320 = $480

Machine B: Depreciation: ($68,200 - $4,500) / 14 years = $4,550/year

$4,550/year x 11 years = $50,050

The net book value of the asset is $68,200 - $50,050 = $18,150. Loss on disposal is $0 - $18,150 = -$18,150