Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 64

Recording and Interpreting the Disposal of Long-Lived Assets
During 2014, Martinez Company disposed of two different assets. On January 1, 2014, prior to their disposal, the accounts reflected the following:

The machines were disposed of in the following ways:
a. Machine A: Sold on January 2, 2014, for $20,000 cash.
b. Machine B: On January 2, 2014, this machine suffered irreparable damage from an accident and was removed immediately by a salvage company at no cost.
Required:
1. Give the journal entries related to the disposal of each machine at the beginning of 2014.
TIP: When no cash is received on disposal, the loss on disposal will equal the book value of the asset at the time of disposal.
2. Explain the accounting rationale for the way that you recorded each disposal.