Question

Current Attempt in Progress On December 31, 2020, Riverbed Inc. has a machine with a book value of $1.278.400. The original cost and related accumulated depreciation at this date are as follows Machine Less: Accumulated depreciation Book value $1,768.000 489.600 $1.278.400 Depreciation is computed at $81,600 per year on a straight line basis. Presented below is a set of independent situations. For each independent situation indicate the journal entry to be made to recor the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal A fire completely destroys the machine on August 31, 2021. An insurance settlement of $584,800 was received for this casualty. Assume the settlement was received immediately. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry"for the account titles and enter for the amounts.) Date Account Titles and Explanation Debit Credit

Answer 1

Answer and explanation:

1 Journal Entries Credit Debit $54,400 Date Account Titles and Explanation 31-Aug Depreciation expense Accumulated Depreciation (To record current depreciation) $54,400 $584,800 $544,000 $639,200 $1,768,000 31-Aug Cash Accumulated Depreciation Loss on Disposal of Machine Machine (To record Loss of the machine) 2 Journal Entries Date Account Titles and Explanation 01-Apr Depreciation expense Accumulated Depreciation (To record current depreciation) Debit Credit $20,400 $20,400 $1,414,400 $510,000 01-Apr Cash Accumulated Depreciation To Machine To Gain on sale of Machine (To record machine sale) $1,768,000 $156,400 3 Journal Entries Debit Credit $47,600 Date Account Titles and Explanation 31-Jul Depreciation expense Accumulated Depreciation (To record current depreciation) $47,600 31-Jul $1,496,000 $537,200 Contribution Expense Accumulated Depreciation Machine Gain on disposal of Machine (To record machine donated) $1,768,000 $265,200

1. Fire destroyed the machine:

Date of fire = August 31, 2021
Annual Depreciation charge = $81,600
Depreciation in 2021, till the date of fire = $81,600 × 8/12 = $54,400

Accumulated depreciation till the date of fire = $489,600 + $54,400 = $544,000

Insurance settlement received = $584,800

Gain or loss on disposal of machinery = Insurance amount - (Original cost of the machinery - Accumulated depreciation till date)
= $584,800 - ($1,768,000 - $544,000) = $639,200
Loss = $639,200

2. Sold the machine:

Date of sale = April 1, 2021
Annual Depreciation charge = $81,600
Depreciation in 2021, till the date of sale = $81,600 × 3/12 = $20,400

Accumulated depreciation till the date of sale = $489,600 + $20,400 = $510,000

Sales value = $1,414,400

Gain or loss on disposal of machinery = Sales value - (Original cost of the machinery - Accumulated depreciation till date)
= $1,414,400 - ($1,768,000 - $510,000) = $156,400
Gain = $156,400

3. Donated the machine

Date of sale = July 31, 2021
Annual Depreciation charge = $81,600
Depreciation in 2021, till the date of donation = $81,600 × 7/12 = $47,600

Accumulated depreciation till the date of donation = $489,600 + $47,600 = $537,200

Fair value on the date of donation = $1,496,000

Gain or loss on disposal of machinery = Sales value - (Original cost of the machinery - Accumulated depreciation till date)
= $1,496,000 - ($1,768,000 - $537,200) = $265,200
Gain = $265,200