During the current year ended December 31, Rank Company disposed of three different assets. On January 1 of the current year, prior to their disposal, the asset accounts reflected the following: Asset Machine A Machine B Machine C Estimated Life 5 years 20 years 14 years The machines were disposed of during the current year in the following ways: a. Machine A: Sold on January 1 for $6,750 cash. b. Machine B: Sold on December 31 for $8,000; received cash, $2,000, and a $6,000 interest-bearing (10 percent) note receivable due at the end of 12 months. c. Machine C: On January 1, this machine suffered irreparable damage from an accident and was scrapped. Original Cost Residual Value $24,000 16,500 59,200 Accumulated Depreciation (straight line) $17,600 (4 years) 4,025 (7 years) 48,000 (12 years) $2,000 5,000 3,200 2. Explain the accounting rationale for the way in which you recorded each disposal. Machine A: Disposal of a long-lived asset with the disposal price above net book value, resulting in a Machine B: Disposal of a long-lived asset with the price below net book value results in a Machine C: Disposal of a long-lived asset due to damage, results in a
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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During the current year ended December 31, Rank Company disposed of three different assets. On January 1 of the
current year, prior to their disposal, the asset accounts reflected the following:
Asset
Machine A
Machine B
Machine C
Original Cost Residual Value Estimated Life
5 years
20 years
14 years
$24,000
16,500
59,200
$2,000
5,000
3,200
Accumulated Depreciation
(straight line)
$17,600 (4 years)
4,025 (7 years)
48,000 (12 years)
The machines were disposed of during the current year in the following ways:
a. Machine A: Sold on January 1 for $6,750 cash.
b. Machine B: Sold on December 31 for $8,000; received cash, $2,000, and a $6,000 interest-bearing (10 percent) note
receivable due at the end of 12 months.
c. Machine C: On January 1, this machine suffered irreparable damage from an accident and was scrapped.
2. Explain the accounting rationale for the way in which you recorded each disposal.
Machine A: Disposal of a long-lived asset with the disposal price above net book value, resulting in a
Machine B: Disposal of a long-lived asset with the price below net book value results in a
Machine C: Disposal of a long-lived asset due to damage, results in a](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1b728f0c-f405-4f05-9754-0881c6de600a%2F3c19b84e-de78-416f-baab-72be528b43c2%2Fyyzrx8_processed.png&w=3840&q=75)
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