Question

Riverbed Company has an old factory machine that cost $54,000. The machine has accumulated depreciation of $30,240. Riverbed has decided to sell the machine. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) (a) What entry would Riverbed make to record the sale of the machine for $27,240 cash? (b) What entry would Riverbed make to record the sale of the machine for $17,240 cash?

Answer 1

a.

The entry Riverbed would make:

Debit Cash $27,240

Debit Accumulated depreciation account $30,240

Credit Gain on asset disposal $3,480

Credit Machine asset $54,000

b.

The entry:

Debit Cash $17,240

Debit Accumulated depreciation account $30,240

Debit Loss on asset disposal $6,520

Credit Machine asset $54,000

Step-by-step explanation:

Companies frequently sell plant assets to dispose them. To recognize gain or loss on disposal:

First, the company calculates the carrying amount of the asset by using the original cost of the asset, minus all accumulated depreciation and any accumulated impairment charges.

Then, subtract this carrying amount from the sale price of the asset. If the remainder is positive, it is a gain and if the remainder is negative, it is a loss

In Riverbed Company, the carrying amount of the machine = $54,000 - $30,240 = $23,760

a. Sale price - Carrying amount of the asset = $27,240 - $23,760 = $3,480

=> The company recognizes gain on disposal $3,480

The entry should be made:

Debit Cash $27,240

Debit Accumulated depreciation account $30,240

Credit Gain on asset disposal $3,480

Credit Machine asset $54,000

b. Sale price - Carrying amount of the asset = $17,240 - $23,760 = -$6,520

=> The company recognizes loss on disposal $6,520

The entry:

Debit Cash $17,240

Debit Accumulated depreciation account $30,240

Debit Loss on asset disposal $6,520

Credit Machine asset $54,000