Question

Rayya Co. purchases and installs a machine on January 1, 2017, at a total cost of $126,000. 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 $54,000 cash. (2) An insurance settlement of $43,200 is received due to the machine’s total destruction in a fire.

Answer 1

		Debit	Credit
July 01, 2021	Depreciation expense	9000		=126000/7*6/12
	Accumulated depreciation—Machinery		9000
1
July 01, 2021	Cash	54000
	Accumulated depreciation—Machinery	81000		=(126000/7*4)+9000
	Gain on sale of machinery		9000
	Machinery		126000
2
July 01, 2021	Cash	43200
	Accumulated depreciation—Machinery	81000
	Loss from fire	1800
	Machinery		126000