During the current year, Martinez Company disposed of two different assets. On January 1, prior to their disposal, the accounts reflected the following: Asset Original Cost Residual Value Estimated Life Accumulated Depreciation (straight-line) Machine A $76,200 $4,200 15 years $62,400 (13 years) Machine B 20,000 2,000 8 years 13,500 (6 years) The machines were disposed of in the following ways: Machine A: Sold on January 2 for $20,000 cash. Machine B: On January 2, this machine was scrapped with zero proceeds (and zero cost of removal).
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.
During the current year, Martinez Company disposed of two different assets. On January 1, prior to their disposal, the accounts reflected the following:
| Asset | Original Cost | Residual Value | Estimated Life | ||
|---|---|---|---|---|---|
| Machine A | $76,200 | $4,200 | 15 years | $62,400 | (13 years) |
| Machine B | 20,000 | 2,000 | 8 years | 13,500 | (6 years) |
The machines were disposed of in the following ways:
- Machine A: Sold on January 2 for $20,000 cash.
- Machine B: On January 2, this machine was scrapped with zero proceeds (and zero cost of removal).
Required:
-
1. & 2. Prepare the journal entries related to the disposal of Machine A and B on the January 2 of the current year. TIP: When no cash is received on disposal, the loss on disposal will equal the book value of the asset at the time of disposal. (If no entry is required for a transaction/event, select "No
Journal Entry Required" in the first account field.)
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