Answer:
1. Loss on sale of machine = $15,700
2. No Loss or Gain
3. Gain = $9,200
Explanation:
Requirement 1
If Diaz Company disposed the machine with a cash of $16,400, the journal entry to record the transaction of disposal of machine will be as follows:
January 1 Cash Debit $16,400
Accumulated depreciation Debit $93,100
Loss on sale of machine Debit $15,700
Machine Credit $125,200
Calculation:
Book value of the machine = Purchase price - Accumulated depreciation = $(125,200 - 93,100) = $32,100
We know, loss on sale of machine = Book value of the machine - Sale price = $(32,100 - 16,400) = $15,700. Loss is a debit as it is an expense.
Requirement 2
If Diaz Company disposed the machine with a cash of $32,100, the journal entry to record the transaction of disposal of machine will be as follows:
January 1 Cash Debit $32,100
Accumulated depreciation Debit $93,100
Machine Credit $125,200
Calculation:
Book value of the machine = Purchase price - Accumulated depreciation = $(125,200 - 93,100) = $32,100
We know, Gain (Loss) on sale of machine = Book value of the machine - Sale price = $(32,100 - 32,100) = $0. As the book value and the disposal value are same, there is no loss and no gain.
Requirement 3
If Diaz Company disposed the machine with a cash of $41,300, the journal entry to record the transaction of disposal of machine will be as follows:
January 1 Cash Debit $41,300
Accumulated depreciation Debit $93,100
Gain on sale of machine Credit $9,200
Machine Credit $125,200
Calculation:
Book value of the machine = Purchase price - Accumulated depreciation = $(125,200 - 93,100) = $32,100
We know, Gain on sale of machine = Sale price - Book value of the machine = $(41,300 - 32,100) = $9,200. Gain is a credit as it shows as the income.
