Question

Disposal of Plant Asset

Citano Company has a used executive charter plane that originally cost $850,000. Straight-line depreciation on the plane has been recorded for six years, with a $70,000 expected salvage value at the end of its estimated eight-year useful life. The last depreciation entry was made at the end of the sixth year. Eight months into the seventh year, Citano disposes of the plane.

Required

Prepare journal entries to record:
a. Depreciation expense to the date of disposal.
b. Sale of the plane for cash at its book value.
c. Sale of the plane for $215,000 cash.
d. Sale of the plane for $195,000 cash.
e. Destruction of the plane in a fire. Citano expects a $190,000 insurance settlement.

General Journal
Reference	Description	Debit	Credit
a.	AnswerAccumulated Depreciation - AirplaneAirplaneCashDepreciation Expense - AirplaneGain on Sale of Plant AssetsLoss of insurance settlementLoss on Sale of Plant AssetsReceivable from insurance company	Answer	Answer
	AnswerAccumulated Depreciation - AirplaneAirplaneCashDepreciation Expense - AirplaneGain on Sale of Plant AssetsLoss of insurance settlementLoss on Sale of Plant AssetsReceivable from insurance company	Answer	Answer
	To record depreciation expense for 8 months.
b.	Cash	Answer	Answer
	AnswerAccumulated Depreciation - AirplaneAirplaneCashDepreciation Expense - AirplaneGain on Sale of Plant AssetsLoss of insurance settlementLoss on Sale of Plant AssetsReceivable from insurance company	Answer	Answer
	AnswerAccumulated Depreciation - AirplaneAirplaneCashDepreciation Expense - AirplaneGain on Sale of Plant AssetsLoss of insurance settlementLoss on Sale of Plant AssetsReceivable from insurance company	Answer	Answer
	To record sale of airplane.
c.	Cash	Answer	Answer
	AnswerAccumulated Depreciation - AirplaneAirplaneCashDepreciation Expense - AirplaneGain on Sale of Plant AssetsLoss of insurance settlementLoss on Sale of Plant AssetsReceivable from insurance company	Answer	Answer
	Airplane	Answer	Answer
	AnswerAccumulated Depreciation - AirplaneAirplaneCashDepreciation Expense - AirplaneGain on Sale of Plant AssetsLoss of insurance settlementLoss on Sale of Plant AssetsReceivable from insurance company	Answer	Answer
	To record sale of airplane.
d.	Cash	Answer	Answer
	AnswerAccumulated Depreciation - AirplaneAirplaneCashDepreciation Expense - AirplaneGain on Sale of Plant AssetsLoss of insurance settlementLoss on Sale of Plant AssetsReceivable from insurance company	Answer	Answer
	Accumulated Depreciation - Airplane	Answer	Answer
	AnswerAccumulated Depreciation - AirplaneAirplaneCashDepreciation Expense - AirplaneGain on Sale of Plant AssetsLoss of insurance settlementLoss on Sale of Plant AssetsReceivable from insurance company	Answer	Answer
	To record sale of airplane.
e.	AnswerAccumulated Depreciation - AirplaneAirplaneCashDepreciation Expense - AirplaneGain on Sale of Plant AssetsLoss of insurance settlementLoss on Sale of Plant AssetsReceivable from insurance company	Answer	Answer
	Loss of insurance settlement	Answer	Answer
	Accumulated Depreciation - Airplane	Answer	Answer
	AnswerAccumulated Depreciation - AirplaneAirplaneCashDepreciation Expense - AirplaneGain on Sale of Plant AssetsLoss of insurance settlementLoss on Sale of Plant AssetsReceivable from insurance company	Answer	Answer
	To record insurance claim on airplane destroyed by fire.

Answer 1

Depreciation for year :[cost- salvage ]/useful life

          =[850000-70000]/8

           = 97500

Total accumulted depreciation till sale : [97500*6]+65000= 650000

Date	Account	Debit	credit
a	Depreciation expense	65000
	Accumulated depreciation		65000
	[depreciation for 8 month recorded 97500*8/12]
b	cash	20000
	Accumulated depreciation -airplane	650000
	Airplane		850000
c	cash	215000
	Accumulated depreciation	650000
	Gain on Sale of Plant Assets		15000
	Airplane		850000

d	cash	195000
	Accumulated depreciation-airplane	650000
	loss on Sale of Plant Assets	5000
	Airplane		850000
e	Receivable from insurance company	190000
	Accumulated depreciation-airplane	650000
	Loss of insurance settlement	10000
	Airplane		850000