Question

During 2017, Ly Company disposed of two different assets. On January 1, 2017, prior to disposal of the assets, the accounts reflected the following:

Asset	Original Cost			Residual Value			Estimated Life	Accumulated Depreciation (straight-line)
Machine A	$	24,000		$	2,000		5 years	$	17,600	(4 years)
Machine B		59,200			3,200		14 years		48,000	(12 years)

The machines were disposed of in the following ways:

1. Machine A: This machine was sold on January 1, 2017, for $5,750 cash.
2. Machine B: On January 1, 2017, this machine suffered irreparable damage from an accident and was removed immediately by a salvage company at no cost.

Required:
1. Prepare the journal entries related to the disposal of each machine at the beginning of 2017. Transaction “a” relates to the recording of the 2017 depreciation and transaction “b” relates to the recording of the disposal of the machine.

a)Machine A

b)Machine B

Answer 1

No	Date	Account titles & Explanations				Debit	Credit
1)	1-Jan	No Entry
2)	1-Jan	Cash				5,750
		Accumulated depreciation-Equipment				17,600
		loss on disposal				650
		Equipment					24,000
3)	1-Jan	No Etnry
4)	1-Jan	Accumulated depreciation-Equipment				48,000
		loss on disposal				11,200
		Equipment					59,200
		(no entry is for depreciation expense)