Prepare the journal entries to record the disposal of machinery on January 2 under each separate situation.

Explanation of Solution
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Prepare the journal entries to record the disposal of the machine on January 3 under each of the given situations as follows:
- 1. Company B sold the machine for $18,250 cash.
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
January 2 | Cash | 18,250 | ||
24,625 | ||||
Loss on disposal of Machinery (1) | 1,125 | |||
Machinery | 44,000 | |||
(To record the loss on disposal of machinery) |
Table (1)
- Cash is an asset, and it increases the value of assets by $18,250. Therefore, debit the cash account with $18,250.
- Accumulated depreciation is a contra asset, and it increases the asset by $24,625. Therefore, debit Accumulated depreciation with $24,625.
- Loss on sale of machinery is loss of the company and it decreases the value of equity by $1,125. Therefore, debit the loss on sale of machinery with $1,125.
- Machinery is an asset, and it decreases the value of assets by $44,000. Therefore, credit machinery account by $44,000.
Working note:
Calculate the loss on disposal of machinery:
- 2. The machine is traded in for a newer machine having a $60,200 cash price. A $25,000 trade-in allowance is received and the balance is paid in cash.
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
January 2 | Machinery (new) | 60,200 | ||
Accumulated Depreciation –Machinery | 24,625 | |||
Machinery (old) | 44,000 | |||
Cash (2) | 35,200 | |||
Gain from sale of machinery (3) | 5,625 | |||
(To record the gain from disposal of old machinery and purchase new machinery) |
Table (2)
- Machinery is an asset, and it increases the value of assets by $60,200. Therefore, debit the machinery account with $60,200.
- Accumulated depreciation is a contra asset, and it increases the asset by $24,625. Therefore, debit Accumulated depreciation with $24,625.
- Machinery (old) is an asset, and it decreases the value of assets by $44,000. Therefore, credit machinery account by $44,000.
- Cash is an asset, and it decreases the value of assets by $35,200. Therefore, credit the cash account with $35,200.
- Gain from sale of machinery is revenue of the company and it increases the value of equity by $5,625. Therefore, debit the loss on sale of machinery with $5,625.
Working note:
Calculate the balance cash paid for purchase of new machinery:
Calculate the gain from disposal of machinery:
- 3. The machine is traded in for a newer machine having a $60,200 cash price. A $15,000 trade-in allowance is received and the balance is paid in cash.
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
January 2 | Machinery (new) | 60,200 | ||
Accumulated Depreciation -Machinery | 24,625 | |||
Loss on disposal of Machinery (5) | 4,375 | |||
Machinery | 44,000 | |||
Cash (4) | 45,200 | |||
(To record the loss from disposal of old machinery and purchase new machinery) |
Table (3)
- Machinery is an asset, and it increases the value of assets by $60,200. Therefore, debit the machinery account with $60,200.
- Accumulated depreciation is a contra asset, and it increases the asset by $24,625. Therefore, debit Accumulated depreciation with $24,625.
- Loss on sale of machinery is loss of the company and it decreases the value of equity by $4,375. Therefore, debit the loss on sale of machinery with $4,375.
- Machinery is an asset, and it decreases the value of assets by $44,000. Therefore, credit machinery account by $44,000.
- Cash is an asset, and it decreases the value of assets by $45,200. Therefore, credit the cash account with $45,200.
Working note:
Calculate the balance cash paid for purchase of new machinery:
Calculate the gain from disposal of machinery:
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- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
