At acquis E for Year I, what would you recommend to management? Would your recom

Question

At acquis E for Year I, what would you recommend to management? Would your recom Year 2? Why or why not? 2 Evaluate each method in terms of its effect on cash flow, fixed asset turno ing that Ford Motor Company is most interested in reducing taxes and maint Recording and Interpreting the Disposal of Three Long-Lived Assets (AP8-5 During the current year g the current year, Merkley Company disposed of three different assets. On J prior to the disposal of the assets, the accounts reflected the following: January 1 of the P8-6 8-3, 8-5 -3, 8-5 During tn disposa year Accumulated Original Residual Estimated Depreciation (straight line Life Asset Cost Machine A $21,000 Machine B 50,000 Machine C 85,000 $3000 10 years 4,000 5.000 15 years 8 years $15,750 (7 years) 36.800 (8 years) 64,000 (12 years) The machines were disposed of during the current year in the following ways: a. Machine A: Sold on January 1 for $5,000 cash. b. Machine B: Sold on December 31 for $10.500; received cash, $2.500, and an $8,000 int interest-bearig (12 percent) note receivable due at the end of 12 months. c. Machine C: On January I, this machine suffered irreparable damage from an accident. On January11 a salvage company removed the machine at no cost. Required: 1. Give all journal entries related to the disposal of each machine in the current year 2. Explain the accounting rationale for the way that you recorded each disposal.

Explanation / Answer

Asset Original Cost Accumulated depreciation Written down value at the beginning of current year Machine A 21000 15750 5250 Machine B 50000 36800 13200 Machine C 85000 64000 21000 Date Particulars Debit Credit Jan-01 Cash A/c Dr …… 5000 Loss on sale of machinery A/c Dr….. 250                   To Machinery A A/c 5250 (Being machinery sold for $5,000 and cash received) Rationale: Since the WDV is greater than the disposal value of machine the co. has incurred a loss on sale. Jan-10 Loss on sale of machinery A/c Dr….. 21000                    To Machinery C A/c 21000 (Being machinery disposed off with no salvage value) Rationale: Since the machinery is diposed off without any consideration the entire amount of machinery is transferred to loss on disposal of machinery A/c Dec-31 Cash A/c Dr …… 2500 Note receivable A/c Dr……… 8000 Loss on sale of Machinery A/c Dr….. 2700                         To Machinery B A/c (Being machinery sold for $10,500, $2500 cash received and note receivable for the balance amount of $8000) Rationale: Since the WDV is greater than the disposal value of machine the co. has incurred a loss on sale. Please hit the like button if the answer helped you else leave a comment for further clarification. Thank you! All the best!

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