Question

Diaz Company owns a milling machine that cost $250,000 and has accumulated depreciation of $182,000. Prepare the entry to record the disposal of the milling machine on January 3 under each of the following independent situations. 1. The machine needed extensive repairs, and it was not worth repairing. Diaz disposed of the machine, receiving nothing in return. 2. Diaz sold the machine for $35,000 cash. 3. Diaz sold the machine for $68,000 cash. 4. Diaz sold the machine for $80,000 cash.

Answer 1

The disposal of the milling machine by Diaz Company results in different accounting entries depending on whether the equipment was disposed of without any return, sold for $35,000, $68,000, or $80,000 cash. The book value of the machine is the cost minus the accumulated depreciation. A loss is recognized if the equipment is sold for less than the book value; a gain is recognized if sold for more.

Step-by-step explanation:

Recording the Disposal of a Milling Machine

The disposal of an asset involves removing the asset's cost and accumulated depreciation from the company's accounting records. Additionally, if the asset is disposed of for cash, the cash received is recorded, and a gain or loss is calculated. Let's explore the journal entries for Diaz Company's milling machine disposal in each scenario:

Machine disposed of with no return: No cash is received, the asset and its accumulated depreciation are removed.

Machine sold for $35,000 cash: Cash is received, and a loss is recorded

Machine sold for $68,000 cash: Cash is received, but there's no gain or loss.

Machine sold for $80,000 cash: Cash is received, and a gain is recorded.

Note that the Gain or Loss on Disposal of Equipment is calculated as the difference between the cash received and the net book value of the equipment at the time of disposal (cost minus accumulated depreciation).

Answer 2

1) loss at disposal 68,000 debit

accumulated depreciation 182,000 debit

milling machine 250,000 credit

2) loss at disposal 33,000 debit

cash 35,000 debit

accumulated depreciation 182,000 debit

milling machine 250,000 credit

3)

cash 68,000 debit

accumulated depreciation 182,000 debit

milling machine 250,000 credit

4) cash 80,000 debit

accumulated depreciation 182,000 debit

gain at disposal 12,000 credit

milling machine 250,000 credit

Step-by-step explanation:

the book value is the same for all alternatives:

cost - accumualted depreciation

250,000 - 182,000 = 68,000 net book value

1) as there is no salvage value all the book alue is considered loss at disposal

from #2 to #4 we recieve cash for the milling machine to determinate the loss/gain we need to do as follows:

proceeds less book value = result (gain if positive loss if negative)

2) 35,000 - 68,000 = -33,000

3) 68,000 - 68,000 = 0

4) 80,000 - 68,000 = 12,000