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.

Homework Answers

Answer #1

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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