Question

Rayya Co. purchases and installs a machine on January 1, 2017, at a total cost of $100,800. 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 $43,200 cash. (2) An insurance settlement of $34,560 is received due to the machine’s total destruction in a fire.

Note: Enter debits before credits.

Record the Depreciation expense as of July 1, 2021

	Date General Journal Debit Credit July 01, 2021 Depreciation expense Accumulated depreciation—Machinery

Record the sale of machinery for 43200 cash

Note: Enter debits before credits.

	Date General Journal Debit Credit July 01, 2021 Cash Accumulated depreciation—Machinery Gain on sale of machinery Machinery

Record the insurance settlement received of 34560 due to the machines total destruction in a fire

Note: Enter debits before credits.

	Date General Journal Debit Credit July 01, 2021 Cash Loss from fire Accumulated depreciation—Machinery Machinery

Answer 1

a) Journal entry

Date	account and explanation	debit	credit
July 1	Depreciation expense (100800/7)*6/12	7200
	Accumulated depreciation—Machinery		7200
	(To record dep)

b) Journal entry

Date	account and explanation	debit	credit
July 1	Cash	43200
	Accumulated depreciation—Machinery (100800/7*4.5)	64800
	Gain on sale of machinery		7200
	Machinery		100800
	(To record sale of machine)

c) Journal entry

Date	account and explanation	debit	credit
July 1	Cash	34560
	Accumulated depreciation—Machinery (100800/7*4.5)	64800
	Loss on sale of machinery	1440
	Machinery		100800
	(To record sale of machine)