Selected accounts included in the property, plant, and equipment section of Faul
ID: 3005509 • Letter: S
Question
Selected accounts included in the property, plant, and equipment
section of Faulty Corporation's balance sheet at December 31, 2017,
had the following balances:
Land $ 400,000
Land improvements 130,000
Buildings 2,000,000
Machinery and equipment 800,000
During 2018, the following transactions occurred:
>> A machine costing $18,000 on July 1, 2016, was scrapped on
June 30, 2018. As of January 1, 2018 sum-of-the-years digit
method depreciation had been recorded on the basis of a 5-year
life with no salvage value.
>> A machine was sold for $38,000 on July 1, 2018. Original cost of
the machine was $72,000 on February 28, 2015. It was
depreciated on the double-declining balance basis over an
estimated useful life of eight years and a salvage value of
$2,000.
Required:
a. Calculate the gain or loss on the disposal of each asset. Place your answer in the
appropriate column.
b. Prepare the journal entries for the disposal & sale of the machine
during 2018. Year 2018 depreciation has yet to be recorded.
a. Calculate the gain or loss on the disposal of each asset. Place your answer in the appropriate column.
Item
Amount of gain
Amount of loss
Scrapped machine on 6/30/18
Sale of machine on 7/1/18
b. Prepare the journal entries for the disposal & sale of the machine during 2018. Year 2018 depreciation has yet been recorded.
Item
Amount of gain
Amount of loss
Scrapped machine on 6/30/18
Sale of machine on 7/1/18
Explanation / Answer
1 Cost of the Machine 18000 1st July 2016 Depreciation for 2 years 18000*5/15+18000*4/15 6000+4800 = $ 10800 Value of the machine scrapped 18000-10800 7200 Journal Entry Accumulated Depreciation Dr 10800 Loss on machine 7200 To Machine 18000
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