During 2012, Callaway Company disposed of three different assets. On January 1, 2012, prior to the disposal of the assets, the accounts reflected the following:

The machines were disposed of in the following ways:

a. Machine A: Sold on January 1,2012 , for \(\$ 6,250\) cash.

b. Machine B: Sold on July 1,2012 , for \(\$ 9,500\); received cash, \(\$ 4,500\), and a \(\$ 5,000\) interestbearing ( 10 percent) note receivable due at the end of 12 months.

c. Machine C: Suffered irreparable damage from an accident on October 2, 2012. On October 10, 2012 , a salvage company removed the machine immediately at a cost of \(\$ 500\). The machine was insured, and \(\$ 11,500\) cash was collected from the insurance company.
Required:
1. Prepare all journal entries related to the disposal of each machine.
2. Explain the accounting rationale for the way that you recorded each disposal.

Transcribed Image Text:

Asset Original Cost Residual Value Estimated Life Accumulated Depreciation Machine A $24,000 $2,000 6 years Machine B 16,500 5,000 10 years Machine C 59,200 3,200 14 years (straight line) $17,600 (4 years) 8,050 (7 years) 48,000 (12 years)