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

Question

Rayya Co purchases and installs a machine on January 1, 2017, at a total cost of $105,000. Straight-line depreciation is taken each year or four years assuming a seven year life and no salvage value. The machine is disposed of on July 1, 2021, during its fifth year of service points Prepare entries to record the partial years depreciation on July 1, 2021 and to record the disposal under the following separate assumptions (1) The machine is sold for $45,500 cash. (2) An insurance settlement of $25,000 is received due to the machine's total destruction in a fire.

Explanation / Answer

Journal entry :

Date accounts & explanation debit credit July 1,2021 Depreciation expense (105000/7)*6/12 7500     Accumlated depreciation 7500 (To record depreciation expense) July 1,2021 Cash 45500 Accumlated depreciation (105000/7)*4.5 67500       Gain on sale of machine 8000       Machine 105000 (To record sale of machine) July 1,2021 Cash 25000 Accumlated depreciation 67500 Loss on fire of machine 12500       Machine 105000 (To record disposal of machine)

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