Exercise 10-17 Partial-year depreciation; disposal of plant asset LO P2 Rayya Co

Question

Exercise 10-17 Partial-year depreciation; disposal of plant asset LO P2 Rayya Co. purchases and installs a machine on January 1, 2017, at a total cost of $142,800. Straight-line depreciation is taken each year for 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. 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 $61,200 cash. (2) An insurance settlement of $48,960 is received due to the machine's total destruction in a fire. View transaction list

Explanation / Answer

Depreciation = $142800 / 7year = $20400 per year

Depreciation for first four years = $20400*4 = $81600

Date Particulars Debit ($) Credit ($) July 01, 2021 Depreciation Expense A/c Dr.($20400 * 6/12) 10200 To Accumulated Depreciation A/c 10200 (To recoed depreciation of Six months) July 01, 2021 Cash A/c Dr. 61200 Accumulated Depreciation A/c Dr. ($81600+$10200) 91800 To Machine A/c 142800 To Gain on Sale of Machine A/c(Balance in figure) 10200 (To record sale of machinery) July 01, 2021 Cash A/c Dr. 48960 Accumulated Depreciation A/c Dr. 91800 Loss on Disposal of Machine A/c Dr.(Balance in figure) 2040 To Machine A/c 142800

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