Question

# The Fascinating Company is replacing a machine used for glazing. The old machine was originally recorded...

The Fascinating Company is replacing a machine used for glazing. The old machine was originally recorded at a cost of \$110,000 and depreciated over 10 years straight line with no salvage value. The statement of financial position shows a book value net of accumulated depreciation at the beginning of the financial year of \$44,000. The cost of the new machine is \$150,000 and Jon negotiated to trade in the old machine for \$40,000 and pays cash for the balance.

Assume the glazing machine is sold on January 1 (half way into the financial year). Journalise all entries relating to the disposal of the old glazing machine.

Depreciation for half year = (\$110,000 / 10) / 2 = \$5,500

Accumulated depreciation = \$44,000 + \$5,500 = \$49,500

Loss on sale of machine = \$110,000 - \$49,500 - \$40,000 = \$20,500

Cash paid for new machine = \$150,000 - \$40,000 = \$110,000

The journal entry to record sale of old machine and purchase of new machine is:

 Date Account Titles and Explanation Debit Credit Jan-01 Machine (New) \$150,000 - Accumulated depreciation \$49,500 - Loss on sale of machine \$20,500 - Machine (Old) - \$110,000 Cash - \$110,000 (To record new machine purchased)

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