Problem: Recording and Interpreting the Disposal of Three Long-Lived Assets
During 2015, Sapporo Enterprises disposed of three different assets. On January 1, 2015, prior to their disposal, the accounts reflected the following:
|
Asset
|
Original Cost
|
Residual Value
|
Estimated Life
|
Accumulated Depreciation (straight line)
|
|
Machine A
|
$10,500
|
$1,500
|
8 Years
|
$6,750 (6 yrs)
|
|
Machine B
|
$20,500
|
$2,000
|
10 Years
|
$14,800 (8yrs)
|
|
Machine C
|
$37,500
|
$2,500
|
15 Years
|
$28,000 (12yrs)
|
The machines were disposed of in the following ways:
a. Machine A: Sold on January 1, 2015, for $3,600 cash.
b. Machine B: Sold on December 31, 2015 for $4,250; received cash, $1,250, and a $3,000 interest bearing (12 Percent) note receivable due at the end of 12 months.
c. Machine C: On January 1, 2015, this machine suffered irreparable damage from an accident. On January 10, 2015, a salvage company removed the machine at no cost.
Required -
1. Give all journal entries related to the disposal of each machine in 2015.
2. Explain the accounting rationale for the way that you recorded each disposal.