Chapter 8, Problem 8.6P

Recording and Interpreting the Disposal of Three Long-Lived Assets (AP8-5)

LO8-3 8-5 During the current year, Merkley Company disposed of three different assets. On January 1 of the current year, prior to the disposal of the assets, the accounts reflected the following:

Asset	Original Cost	Residual Value		Estimated Life	Accumulated Depreciation (straight line)
Machine A	$21,000	$3,000	8 years		$15,750 (7 years)
Machine B	50,000	4,000	10 years		36,800 (8 years)
Machine C	85,000	5,000	15 years		64,000 (12 years)

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

1. a. Machine A: Sold on January 1 for $5,000 cash.
2. b. Machine B: Sold on December 31 for $10,500; received cash, $2,500, and an $8,000 interest-bearing (12 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. On January 10, a salvage company removed the machine at no cost.

Required:

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