Question

On December 31, 2020, Ivanhoe Inc. has a machine with a book value of $1,297,200. The original cost and related accumulated depreciation at this date are as follows.

Machine		$1,794,000
Less: Accumulated depreciation		496,800
Book value		$1,297,200

Depreciation is computed at $82,800 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 record 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 $593,400 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 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
August 31, 2021	enter an account title to record current depreciation	enter a debit amount	enter a credit amount
	enter an account title to record current depreciation	enter a debit amount	enter a credit amount
	(To record current depreciation.)
August 31, 2021	enter an account title to record loss of the machine	enter a debit amount	enter a credit amount
	enter an account title to record loss of the machine	enter a debit amount	enter a credit amount
	enter an account title to record loss of the machine	enter a debit amount	enter a credit amount
	enter an account title to record loss of the machine	enter a debit amount	enter a credit amount
	(To record loss of the machine.)

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List of Accounts

On April 1, 2021, Ivanhoe sold the machine for $1,435,200 to Yoakam Company. (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 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
April 1, 2021	enter an account title to record current depreciation	enter a debit amount	enter a credit amount
	enter an account title to record current depreciation	enter a debit amount	enter a credit amount
	(To record current depreciation.)
April 1, 2021	enter an account title to record sale of the machine	enter a debit amount	enter a credit amount
	enter an account title to record sale of the machine	enter a debit amount	enter a credit amount
	enter an account title to record sale of the machine	enter a debit amount	enter a credit amount
	enter an account title to record sale of the machine	enter a debit amount	enter a credit amount
	(To record sale of the machine.)

On July 31, 2021, the company donated this machine to the Mountain King City Council. The fair value of the machine at the time of the donation was estimated to be $1,518,000. (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 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
July 31, 2021	enter an account title to record current depreciation	enter a debit amount	enter a credit amount
	enter an account title to record current depreciation	enter a debit amount	enter a credit amount
	(To record current depreciation.)
July 31, 2021	enter an account title to record donation of the machine	enter a debit amount	enter a credit amount
	enter an account title to record donation of the machine	enter a debit amount	enter a credit amount
	enter an account title to record donation of the machine	enter a debit amount	enter a credit amount
	enter an account title to record donation of the machine	enter a debit amount	enter a credit amount
	(To record donation of the machine.)

Answer 1

1. The fire destroyed the asset completely and insurance proceeds are received. Till aug 31, depreciation needs to provided for and then asset is to be written off as it is destroyed

Date	Particulars	Debit ($)	Credit ($)
31 Aug 2021	Depreciation expense (82800*8/12)	55,200
	Accumulated depreciation		55,200
	(to record depreciation expense)
	Revised accumulated depreciation = 496,800+55,200 = 552,000
31 Aug 2021	Accumulated depreciation	552,000
	Cash	593,400
	Loss on destruction of machine (To balance)	648,600
	Machine		1,794,000
	(To record destruction of machine)

2. On April 1, 2021, Invanhoe sold the machine for 1,435,200.

The depreciation will be provided till April 1 i.e. for 3 months

Date	Particulars	Debit ($)	Credit ($)
1 Apr 2021	Depreciation expense (82800*3/12)	20,700
	Accumulated depreciation		20,700
	(to record depreciation expense)
	Revised accumulated depreciation = 496,800+ 20,700= 517,500
1 Apr 2021	Accumulated depreciation	517,500
	Cash	1,435,200
	Machine		1,794,000
	Gain on sale of machine		158,700
	(To record sale of machine)

3. On July 31, machine is donated and fair value on date is $ 1,518,000.

Depreciation has to be provided for 7 months till 31.07.

Date	Particulars	Debit ($)	Credit ($)
31 Jul 2021	Depreciation expense (82800*7/12)	48,300
	Accumulated depreciation		48,300
	(to record depreciation expense)
	Revised accumulated depreciation = 496,800+ 48,300= 545,100
31 Jul 2021	Accumulated depreciation	545,100
	Donation (To balance)	1,248,900
	Machine		1,794,000
	(To record donation of machine)

Note that fair value of machine as on donation does not matter because end use is ultimately the asset is to written off and difference value between accumulated depreciation and historical cost is written down as donation amount.

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