Diaz Company owns a machine that cost $125,200 and has accumulated depreciation of $93,100. Prepare the entry to record the disposal of the machine on January 1 in each seperate situation. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return. Diaz sold the machine for $16,400 cash. Diaz sold the machine for $32,100 cash. Diaz sold the machine for $41,300 cash.

1. Loss on sale of machine = $15,700

2. No Loss or Gain

3. Gain = $9,200

Explanation:

Requirement 1

If Diaz Company disposed the machine with a cash of $16,400, the journal entry to record the transaction of disposal of machine will be as follows:

January 1   Cash                                       Debit        $16,400

                  Accumulated depreciation   Debit        $93,100

                  Loss on sale of machine       Debit        $15,700

                  Machine                                      Credit        $125,200

Calculation:

Book value of the machine = Purchase price - Accumulated depreciation = $(125,200 - 93,100) = $32,100

We know, loss on sale of machine = Book value of the machine - Sale price = $(32,100 - 16,400) = $15,700. Loss is a debit as it is an expense.

Requirement 2

If Diaz Company disposed the machine with a cash of $32,100, the journal entry to record the transaction of disposal of machine will be as follows:

January 1   Cash                                       Debit        $32,100

                  Accumulated depreciation   Debit        $93,100

                  Machine                                      Credit        $125,200

Calculation:

Book value of the machine = Purchase price - Accumulated depreciation = $(125,200 - 93,100) = $32,100

We know, Gain (Loss) on sale of machine = Book value of the machine - Sale price = $(32,100 - 32,100) = $0. As the book value and the disposal value are same, there is no loss and no gain.

Requirement 3

If Diaz Company disposed the machine with a cash of $41,300, the journal entry to record the transaction of disposal of machine will be as follows:

January 1   Cash                                       Debit        $41,300

                  Accumulated depreciation   Debit        $93,100

                  Gain on sale of machine       Credit               $9,200

                  Machine                                      Credit        $125,200

Calculation:

Book value of the machine = Purchase price - Accumulated depreciation = $(125,200 - 93,100) = $32,100

We know, Gain on sale of machine = Sale price - Book value of the machine = $(41,300 - 32,100) = $9,200. Gain is a credit as it shows as the income.

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