Question

Jan. 1 Retired a piece of machinery that was purchased on January 1, 2010. The machine cost $64,000 on that date. It had a useful life of 10 years with no salvage value. June 30 Sold a computer that was purchased on January 1, 2017. The computer cost $30,000. It had a useful life of 5 years with no salvage value. The computer was sold for $14,200. Dec. 31 Discarded a delivery truck that was purchased on January 1, 2016. The truck cost $43,440. It was depreciated based on a 6-year useful life with a $3,000 salvage value. Journalize all entries required on the above dates, including entries to update depreciation, where applicable, on assets disposed of. Tamarisk, Inc. uses straight-line depreciation. (Assume depreciation is up to date as of December 31, 2019.)

Answer 1

a) January 1, 20`19:

Debit Loss on Disposal of Machine with $6,400

Credit Machine Account with $6,400

Being the loss on disposal of machine with no salvage value

b) June 30 Sale of a computer purchased on January 1, 2017

Debit Depreciation with $3,000

Credit Accumulated Depreciation with $3,000

Bening depreciation charge for the half year to June 30.

2) Debit Cash Account with $14,200

Debit Loss on Disposal with $800

Credit Computer Account with $15,000

Being cash sales of a computer with the loss on disposal

c) Discarding of Delivery Truck on December 31, 2019

Debit Depreciation with $6,740

Credit Accumulated Depreciation with $6,740

Being depreciation charge for the year

2) Debit Loss on Discarding Truck with $16,480

Credit Delivery Truck with $16,480

Being the balance on the Truck discarded

Step-by-step explanation:

a) The machine was depreciated over 9 years. The loss on disposal of $6,400 represents the depreciation charge for the 10th year. Since the disposal took place on January 1, there would be no depreciation charge for the current year.

Therefore, the balance on the asset is regarded as a loss on disposal or retirement. The machine had no salvage value. The effect of the loss on disposal or retirement would be to bring the asset to a nil balance, given accumulated depreciation of $57,600 ($6,400 x 9 years).

b) The computer was sold on June 30, therefore, the depreciation charge for the half year is duly recognised. Since the computer was sold for $14,200 with accumulated depreciation of $15,000, there is a loss on disposal of $800. This is recognised to bring the asset account to a nil balance after disposal.

c) The delivery truck had an accumulated depreciation of $26,960 for 4 years. The loss on discarding the truck amount to the asset cost of $43,440 less the accumulated depreciation of $26,960.