A company purchased a machine for $700,000.The accumulated depreciation on the machine is now $120,000.The machine is junked.Which journal entry is prepared to record the disposal?

Question

Quizplus · Accepted Answer

When an asset is disposed of, the amount received for the asset is compared to the book value of the asset (original cost less accumulated depreciation) to determine if a gain or loss is recognized. 
In this case, the original cost of the machine was $700,000 and the accumulated depreciation is $120,000, so the book value of the machine is $580,000 ($700,000 - $120,000). 
Since the machine is junked, it is assumed that no cash is received for the disposal. Therefore, a loss on disposal for $580,000 needs to be recognized. 
The entry to record the disposal would be:
Debit Loss on Disposal of Machine for $580,000
Debit Accumulated Depreciation - Machine for $120,000
Credit Machine for $700,000

A Company Purchased a Machine for $700,000