Warren Paints purchased machinery for $75,000 eight years ago. It was expected to have a useful life of ten years, no salvage value, and was depreciated using the straight-line method. At the end of its eighth year of use it was retired from service and given to a junk dealer. The entry to record the retirement includes a:

Question

Quizplus · Accepted Answer

When a fixed asset is retired or disposed of, the company must recognize any gains or losses on the disposal. In this case, the machinery was purchased for $75,000 and depreciated over eight years, so the accumulated depreciation would be $60,000 (8/10 x $75,000). Since there is no salvage value, the machinery has a book value of $15,000 ($75,000 - $60,000). When it is given to a junk dealer, the company realizes a loss of $15,000 ($15,000 - $0 salvage value). Therefore, the entry to record the retirement includes a debit to Loss on Disposal for $15,000.

Warren Paints Purchased Machinery for $75,000 Eight Years Ago