Recording and Interpreting the Disposal of Three Long Lived Assets – During 2012, Jensen Company disposed of three different assets. On January 1, 2012, prior to their disposal, the accounts reflected the following:
|
Asset |
Original Cost |
Residual Value |
Estimated Life |
Accumulated Depreciation (straight line) |
|
Machine A |
$21,000 |
$3,000 |
8 years |
$13,500 (6 years) |
|
Machine B |
41,000 |
4,000 |
10 years |
29,600 (8 years) |
|
Machine C |
75,000 |
5,000 |
15 years |
56,000 (12 years) |
The machines were disposed of in the following ways:
a. Machine A: Sold on January 1, 2012, for $7,200 cash.
b. Machine B: Sold on December 31, 2012, for $8,500; received cash, $2,500, and a $6,000 interestbearing (12 percent) note receivable due at the end of 12 months.
c. Machine C: On January 1, 2012, this machine suffered irreparable damage from an accident. On January 10, 2012, a salvage company removed the machine at no cost.
Required:
1. Give all journal entries related to the disposal of each machine in 2012.
2. Explain the accounting rationale for the way that you recorded each disposal.