Final answer:
The disposal of furniture is recorded by removing the original cost and accumulated depreciation, and recording the cash received plus any gain or loss. Gain or loss is the difference between the net book value of the furniture and the cash received.
Step-by-step explanation:
To record the disposal of furniture in the accounts, we must remove the asset's original cost and its accumulated depreciation from the balance sheet. If the furniture is sold, we will also have to record the cash received and any gain or loss on the sale. The gain or loss is determined by comparing the net book value of the furniture with the cash received from the sale.
Here’s how the entries would be recorded for each scenario:
Case a: Sold for $300,000 cash
Debit Cash: $300,000
Debit Accumulated Depreciation: $7,700,000
Credit Furniture: $8,000,000
Credit Loss on Disposal: $0
The sale proceeds equal the net book value of the furniture ($8,000,000 cost - $7,700,000 accumulated depreciation), so no gain or loss is recognized.
Case b: Sold for $900,000 cash
Debit Cash: $900,000
Debit Accumulated Depreciation: $7,700,000
Credit Furniture: $8,000,000
Credit Gain on Disposal: $600,000
The sale proceeds are greater than the net book value by $600,000, so a gain on disposal is recognized.
Case c: Sold for $100,000 cash
Debit Cash: $100,000
Debit Accumulated Depreciation: $7,700,000
Debit Loss on Disposal: $200,000
Credit Furniture: $8,000,000
The sale proceeds are less than the net book value by $200,000, so a loss on disposal is recognized.