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 $176,400. 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 $88,200 cash. (2) An insurance settlement of $74,088 is received due to the machine’s total destruction in a fire.

Credit No 1 Date July 01, 2021 General Journal Depreciation expense Accumulated depreciation-Machinery Debit 12,600 12,600 2 July 01, 2021 Cash Accumulated depreciation-Machinery 3 July 01, 2021 Cash Accumulated depreciation—Machinery Loss from fire Machinery

Answer 1

No	Date	General Journal	Debit	Credit
1	July 01, 2021	Depreciation Expense	$11025
		Accumulated Depreciation-Machinery		$11025
2	July 01, 2021	Cash	$88200
		Accumulated Depreciation-Machinery	$99225
		Gain on sale of machinery		$11025
		Machinery		$176400
3	July 01, 2021	Cash	$74088
		Accumulated Depreciation-Machinery	$99225
		Loss from fire	$3087
		Machinery		$176400

Explanation

Annual depreciation = $176400 / 8 years = $22050
Depreciation for 6 months in 2021 = $22050 × 6/12 = $11025

Total accumulated depreciation at date of disposal:

Four years 2017-2020 (4 × $22050)	$	88200
Partial year 2021 (6/12 × $22050)		11025
Total accumulated depreciation	$	99225