Question

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 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 $71,400 cash. (2) An insurance settlement of $59,976 is received due to the machine’s total destruction in a fire.

Answer 1

Answer:

Case (1)

July 1, 2021       Depreciation expense                                 $8925

                               Accumulated Depreciation Expense                $8925

                           ( Depreciation recorded by Rayya Co.)

July 1, 2021       Cash                                                                   $71400

                         Accumulated Depreciation - Machine              $62475

                         Loss on Sale of Machinery                                 $8925

                                  Machine                                                             $142800      

                           ( Machinery Sold for Cash)

Case (2)

July 1, 2021       Depreciation expense                                 $8925

                               Accumulated Depreciation Expense                $8925

                           ( Depreciation recorded by Rayya Co.)

July 1, 2021        Cash                                                                   $59976

                           Accumulated Depreciation - Machine             $62475

                           Loss on by fire                                                   $20349

                                   Machine                                                             $142800      

                           ( Machinery Sold for Cash)

Explanation:

The Case 1 requires to sale the machinery for $71400 while actual value of machinery was at the level $62475 which result in the loss of $8925 to Rayya Co.  In order to sale machinery we need to get book value of machine that is calculated using half year depreciation and adding the value start of year accumulated depreciation.  The case 2 required to settle sale of machinery with the insurance claim. Similarly we get loss on settlement with insurance company on event of insurance settlement.