Marionnette International is a worldwide operator and franchisor of hotels and related lodging facilities totaling nearly $1.6 billion in net property and equipment. Assume that Marionnette replaced furniture that had been used in the business for five years. The records of the company refilected the following regarding the sale of the existing furniture.
Furniture (cost) $6,060,000
Accumulated depreciation 5,551,000
Required:
1. Prepare the journal entry for the disposal of the furniture, assuming that it was sold for: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars not in millions.)
a. $509,000 cash
b.$1,619,000 cash
c.$407,000 cash

The following journal entries apply in each of the scenarios:

(a) If the furniture was sold for $509,000 cash,

                                                                   Debit ($)                        Credit ($)

Accumulated depreciation                     5,551,000

Furniture (cost)                                                                               6,060,000

Cash (sale proceeds)                                509,000

(Being entries to record disposal of furniture at the net book value)

(b) If the furniture was sold for $1,619,000 cash,

                                                                   Debit ($)                        Credit ($)

Accumulated depreciation                     5,551,000

Furniture (cost)                                                                               6,060,000

Gain on disposal of asset                                                                1,110,000

Cash (sale proceeds)                              1,619,000

(Being entries to record disposal of furniture)

(c) If the furniture was sold for $407,000 cash,

                                                                   Debit ($)                        Credit ($)

Accumulated depreciation                     5,551,000

Furniture (cost)                                                                               6,060,000

Loss on disposal of asset                          102,000

Cash (sale proceeds)                                 407,000

(Being entries to record disposal of furniture)

Explanation: Normally, most organizations dispose their assets using the net book value (cost minus the accumulated depreciation) to determine the price to sell the assets. So, most of them do not intend to sell below the NBV, they usually add margins to make profit except in certain other considerations. To recognize the disposal, the cost (asset account) has to be credited while the accumulated depreciation has to be debited. Of course the sales proceed goes into your cash account as receipt (debit), then the difference between the sales proceed and the NBV is either a gain on disposal or loss.

This is the full question:

At the beginning of 2016, Air Asia purchased a used airplane at a cost of $40,000,000. Air Asia expects the plane to remain useful for eight years (5,000,000 miles) and to have a residual value of $5,000,000. Air Asia expects the plane to be flow 1,200,000 the first year and 1,400,000 the second year.

1) Compute second-year (2017) depreciation expense using the following methods

a. Straight-line

b. Units-of-production

c. Double-declining-balance

2) Calculate the balance in Accumulated Depreciation at the end of the second year for all three methods:

Explanation:

1)a) Straight-line

Depreciable base = Cost of the Asset - Residual Value

                              = $40,000,000 - $5,000,000

                              = $35,000,000

Depreciation expense per year = Depreciable base / years of useful life

                                                     = $35,000,000 / 8

                                                     = $4,375,000

The depreciation expense for the second year is = $4,375,000

b) Units-of-production

Units of Production Rate = Depreciable Base / Units Over Useful Life

                                        = $35,000,000 / 5,000,000 miles

                                        = 7

Depreciation Expense = Units of Production Rate x Actual Units Produced

                                      = 7 x 1,400,000 miles in the second year

                                      = $9,800,000

c. Double-declining-balance

Double-declining balance = 2 x (Asset Cost - Residual Value ) / Useful Life of the Asset

                                           = 2 x ($40,000,000 - $5,000,000) / 8

                                           = $8,750,000

2) a) Straight-line Accumulated depreciation

We simply multiply the previous answer by two = $4,375,000 x 2

                                                                              = $8,750,000

2) b) Units-of-production Accumulated depreciation

First we find the depreciation expense for the first year using the same formula as above

= 7 x 1,200,000

= $8,400,000

Finally we simply add up depreciation expense for the two years

= $8,400,000 + $9,800,000

= $18,200,000

2) c) Double-declining-balance Accumulated depreciation

We simply multiply the first result by two = $8,750,000 x 2

                                                                    = $17,500,000