Question

Rayya Co. purchases and installs a machine on January 1, 2017, at a total cost of $134,400. Straight-line depreciation is taken each year for four years assuming a eight-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 $67,200 cash. (2) An insurance settlement of $56,448 is received due to the machine’s total destruction in a fire.

*Record the depreciation expense as of July 1, 2021.

*Record the sale of the machinery for $67,200 cash.

*Record the insurance settlement received of $56,448 due to the machine’s total destruction in a fire.

	Date General Journal Debit Credit July 01, 2021

Answer 1

No.	Date	Journal	Debit	Credit
1.	July 1,2021	Depreciation Expense A/c	$8400
		To Accumulated Depreciation- Machinery A/c		$8400
2.	July1,2021	Cash A/c	$67200
		Accumulated Depreciation Machinery A/c	$75600
		To Profit on sale of machinery		$8400
		To Machinery A/c		$134400
3.	July 1 2021	Cash A/c	$56448
		Accumulated Depreciation Machinery A/c	$75600
		Loss from fire	$2352
		To Machinery A/c		$134400

Notes

a.) Calculation of depreciation per Year = Cost of Machinery / No of useful life

= $134,400/8

= $16800

b.) Depreciation for 6 months in 2021

= $16800/2

=$8400

c) Accumulated Depreciation on Machinery till 1 July 2021

Four Years Depreciation = 4*$16800=$67200

Half Year depreciation= $8400

Total = $75600

d) Book Value of Machinery = Cost – Accumulated Depreciation

= $134400-$75600

=$58800