Question

Rayya Co. purchases a machine for $201,600 on January 1, 2019. Straight-line depreciation is taken each year for four years assuming a seven-year life and no salvage value. The machine is sold on July 1, 2023, during its fifth year of service.
  
Prepare entries to record the partial year’s depreciation on July 1, 2023, and to record the sale under each seperate situation. (1) The machine is sold for $86,400 cash. (2) The machine is sold for $69,120 cash

Answer 1

Answer :

A) Entry for recording partial depreciation :

Date	Particular	Debit	Credit
1 July 2023	Depreciation Expense Dr.	14400
	To Accumulated Depreciation - Machinery		14400

Depreciation for 6 Month = 201600 / 7 * (1/2) = 14400

B) Entry for Sale of asset

(1) If asset Sold at 86400 :

Date	Particular	Debit	Credit
1 July 2023	Cash Dr.	86400
	Accumulated Depreciation - Machinery Dr.	129600
	To Gain on sale ( 201600-129600-86400)		14400
	To Machinery		201600

Accumulated Depreciation = [201600 / 7 * 4 ] + 14400 ==> 129600

(2) If asset sold at 69120 :

Date	Particular	Debit	Credit
1 July 2023	Cash Dr.	69120
	Accumulated Depreciation - Machinery Dr.	129600
	Loss on sale Dr. (201600-129600-69120)	2880
	To Machinery		201600