Question

JacobCO Inc. manufactures PVC waterpipe in a variety of different sizes. It uses different sizes of extruders to make the pipe. The company has a 3” extruder that it had bought 8 years ago for $175,000. It had a 10 year physical life with an estimated salvage value of $30,000 at the end of that time period. The company wants to make a new line of larger PVC water pipes and it needs to replace the 3” extruder with a new 5” extruder. The company uses straight line depreciation and the depreciation on the 3” extruder is up to date at the end of year 8.

Required:

A. Assume that the company sold the 3” extruder for $60,500 at the end of year 8. Make the required journal entries to record the transaction.

B. Assume that the company sold the 3” extruder for $22,000 at the end of year 8. Make the required journal entries to record the transaction.

DATE	ACCOUNT	DR	CR

Answer 1

A.

DATE	ACCOUNT	DR	CR
End of Year 8	Cash	60500
	Accumulated depreciation-equipment	116000
	Equipment		175000
	Gain on disposal of asset		1500
	(To record disposal of asset)

B.

DATE	ACCOUNT	DR	CR
End of Year 8	Cash	22000
	Accumulated depreciation-equipment	116000
	Loss on disposal of asset	37000
	Equipment		175000
	(To record disposal of asset)

Annual depreciation = ($175000 - $30000)/10 years = $14500

Accumulated depreciation for 8 years = $14500 x 8 = $116000