Final answer:
The student is being asked to make a journal entry to account for a machine that has no future economic value due to obsolescence. A loss on disposal of the asset needs to be recorded, which is calculated by deducting accumulated depreciation from the original cost to determine the remaining book value. This loss reflects that the asset no longer provides future economic benefits to the company.
Step-by-step explanation:
The subject of this question is regarding an accounting treatment for a piece of machinery owned by Ace Electronics which can no longer be utilized due to obsolescence. Since the machine was purchased six years ago, with a useful life of 10 years and a residual value of $10,000, Ace Electronics has been recording straight-line depreciation each year. However, now that the machine no longer has any economic value because the product it makes is obsolete, Ace should recognize this full obsolescence in its financial records. The journal entry required will include a loss on the disposal of the asset, which effectively writes off the remaining book value of the machine to reflect that it has no recoverable amount or future economic benefits.
To calculate the loss, one would subtract the accumulated depreciation from the original cost to get the book value, and then compare this to the machine's current value, which in this case is $0. The accumulated depreciation can be calculated as follows: ($310,000 - $10,000 residual value) / 10 years of useful life = $30,000 annual depreciation; $30,000 annual depreciation x 6 years = $180,000 accumulated depreciation. Hence, the book value before recognizing the loss is $310,000 - $180,000 = $130,000. Since the machine's current value is $0, the loss is $130,000. The journal entry would debit a loss on disposal of assets for $130,000 and credit the machinery asset account for the same amount.