Question

Exercise 8-17 Partial-year depreciation; disposal of plant asset LO P2 Rayya Co. purchases a machine for $126,000 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 $54,000 cash. (2) The machine is sold for $43,200 cash.

Answer 1

Credit Debit $ 9,000 Si.No. Date General journal 1 |July.1,2023 Depreciation Expense Accumulated Depreciation - Machinery (To record depreciation expense) $ 9,000 2 $ 54,000 $81,000 July.1,2023 Cash Accumulated Depreciation - Machinery Gain on sale of Machinery Machinery (To record sale of machinery) $ 9,000 $ 126,000 3 July.1,2023 Cash Accumulated Depreciation - Machinery Loss on sale of Machinery Machinery (To record sale of machinery) $43,200 $81,000 $ 1,800 $ 126,000 Working Notes: Machinery cost = $126,000 Useful Life = 7 Years Depreciation under straight line method = (Cost of machinery - Salvage value)/Useful Life 2019 Year Depreciation = ($126,000-$0)/7 = $18,000 Jan.1,2023 to July.1,2023 Depreciation = $18,000*6/12 = $9,000 Accumulated Depreciation as on July.1,2023 = $18,000+$18,000+$18,000+$18,000+$9,000 = $81,000 Gain on sale of machinery = $54,000+$81,000 - $126,000 = $9,000 Loss on sale of machinery = $126,000-$43,200-$81,000 = $1,800