Rayya Co. purchases and installs a machine on January 1, 2017, at a total cost o

Question

Rayya Co. purchases and installs a machine on January 1, 2017, at a total cost of $201,600. Straight-line depreciation is taken each year for four years assuming a eight-year life and no salvage value. The machine is disposed of on July 1, 2021, during its fifth year of service.

Prepare entries to record the partial year’s depreciation on July 1, 2021, and to record the disposal under the following separate assumptions: (1) The machine is sold for $100,800 cash. (2) An insurance settlement of $84,672 is received due to the machine’s total destruction in a fire.

Explanation / Answer

Note :

Journal Entries

Date Accounts Titles & Explanation Debit ($) Credit ($) To record the partial year’s depreciation July 1, 2021 Depreciation 12,600 Accumulated Depreciation - Machinary 12,600 (1) The machine is sold for $100,800 cash July 1, 2021 Cash 100,800 Accumulated Depreciation - Machinary 113,400 Machinary 201,600. Gain on disposal of machinary 12,600 (2) The machine’s total destruction in a fire. An insurance settlement of $84,672 is received July 1, 2021 Cash 84,672 Accumulated Depreciation - Machinary 113,400 Loss  on disposal of machinary 3,528 Machinary 201,600

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