Question

Diaz Company owns a milling machine that cost \(250,000 and has accumulated depreciation of \)182,000. Prepare the entry to record the disposal of the milling machine on January 3 under each of the following independent situations.

1. The machine needed extensive repairs, and it was not worth repairing. Diaz disposed of the machine, receiving nothing in return.
2. Diaz sold the machine for \(35,000 cash.
3. Diaz sold the machine for \)68,000 cash.
4. Diaz sold the machine for $80,000 cash.

Short answer

1. The loss on disposal is $68,000.
2. The loss on disposal is $33,000.
3. There is neither a profit nor a loss.
4. The profit is $12,000.

Step-by-step solution

Computation of book value of milling machine

$\begin{array}{rcl}\mathrm{Book} \mathrm{value}& =& \mathrm{cost}-\mathrm{accumulated} \mathrm{depreciation}\\ & =& \$250,000-\$182,000\\ & =& \$68,000.\end{array}$

(1) Disposal of the milling machine and received nothing in return

Jan 3	Loss on disposal of milling machine	$68,000
	Accumulated depreciation-milling machine	$182,000
	Milling machine		$250,000
	Record disposal of milling machine

(2) Diaz sold the machine for $35,000

$\begin{array}{rcl}Profit or loss& =& selling price-book value\\ & =& \$35,000-\$68,000\\ & =& \$33,000\left(loss\right).\end{array}$

Jan 3	Cash	$35,000
	Loss on disposal of milling machine	$33,000
	Accumulated depreciation-milling machine	$182,000
	Milling machine		$250,000
	Record disposal of and loss on milling machine

(3) Diaz sold the machine for $68,000

$\mathbf{Selling}\mathbf{ }\mathbf{}\mathbf{price}\mathbf{=}\mathbf{book}\mathbf{}\mathbf{ }\mathbf{value}\mathbf{=}\mathbf{no}\mathbf{}\mathbf{ }\mathbf{profit}\mathbf{,}\mathbf{}\mathbf{ }\mathbf{no}\mathbf{}\mathbf{ }\mathbf{loss}\mathbf{.}$

Jan 3	Cash	$68,000
	Accumulated depreciation-milling machine	$182,000
	Milling machine		$250,000
	Record disposal of milling machine

(4) Diaz sold the machine for $80,000

$$\begin{gathered} \mathbf{Profit}\mathbf{ }\mathbf{}\mathbf{or}\mathbf{ }\mathbf{}\mathbf{loss}\mathbf{=}\mathbf{selling}\mathbf{ }\mathbf{}\mathbf{price}\mathbf{-}\mathbf{book}\mathbf{}\mathbf{ }\mathbf{value} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{80}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{68000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{000}\mathbf{}\left(\mathrm{profit}\right)\mathbf{.} \end{gathered}$$

Jan 3	Cash	$80,000
	Accumulated depreciation-milling machine	$182,000
	Profit on disposal of milling machine		$12,000
	Milling machine		$250,000
	Record disposal of and profit on milling machine