Chapter 8, Problem 8.5AP

Recording and Interpreting the Disposal of Three Long-Lived Assets (P8-6)

LO8-3, 8-5 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	Original Cost	Residual Value	Estimated Life	Depreciation (straight line)
Machine A	$24,000	$2,000	5 years	$17, 600 (4 years)
Machine B	16,500	5,000	20 years	4,025 (7 years)
Machine C	59,000	3,200	14 years	48,000 (12 years)

The machines were disposed of during the current year in the following ways:

1. a. Machine A: Sold on January 1 for $6,750 cash.
2. 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.
3. c. Machine C: On January 1, this machine suffered irreparable damage from an accident and was scrapped.

Required:

1. 1. Give all journal entries related to the disposal of each machine.
2. 2. Explain the accounting rationale for the way in which you recorded each disposal.