Diaz Company owns a machine that cost $125,200 and has accumulated depreciation of $93,100. Prepare the entry to record the disposal of the machine on January 1 in each seperate situation. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return. Diaz sold the machine for $16,400 cash. Diaz sold the machine for $32,100 cash. Diaz sold the machine for $41,300 cash.

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.