Forward Co. discarded a machine that cost $5,000 and was fully depreciated. The entry to record this transaction would include a credit to the Blank______ account.Multiple choice question.Depreciation Expense - MachineryAccumulated Depreciation - MachineryMachineryLoss on Disposal of Machinery
Question
Forward Co. discarded a machine that cost $5,000 and was fully depreciated. The entry to record this transaction would include a credit to the Blank______ account.Multiple choice question.Depreciation Expense - MachineryAccumulated Depreciation - MachineryMachineryLoss on Disposal of Machinery
Solution
The correct answer is Accumulated Depreciation - Machinery.
Here's the step by step explanation:
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When an asset is fully depreciated, it means its cost has been completely allocated to depreciation expense over its useful life.
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The original cost of the asset is recorded in the Machinery account, and the total depreciation taken over the years is recorded in the Accumulated Depreciation - Machinery account.
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When the asset is discarded, the Machinery account is debited (decreased) for the original cost of the asset, and the Accumulated Depreciation - Machinery account is credited (decreased) for the total depreciation.
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Since the machine is fully depreciated, the cost and accumulated depreciation are equal. Therefore, there is no gain or loss on disposal, so the Loss on Disposal of Machinery account is not affected.
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The Depreciation Expense - Machinery account is used to record depreciation expense each period, not to record the disposal of an asset. Therefore, this account is not affected by the disposal.
So, the entry to record this transaction would include a credit to the Accumulated Depreciation - Machinery account.
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