Question

ayya Co. purchases a machine for $210,000 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 $90,000 cash. (2) The machine is sold for $72,000 cash.

Answer 1

Solution:

Annual depreciation on machine = (Cost - Salvage value) / useful life = $210,000/7 = $30,000

Accumulated depreciation for 4 years = $30,000*4 = $120,000

Depreciation for partial year = $30,000*6/12 = $15,000

Accumulated depreciation up to date of sale = $120,000 + $15,000 = $135,000

Journal Entries
Event	Date	Particulars	Debit	Credit
1	1-Jul-23	Depreciation expense Dr	$15,000.00
		To Accumulated depreciation - equipment		$15,000.00
		(To record partial year depreciation_
2	1-Jul-23	Cash Dr	$90,000.00
		Accumulated depreciation - Equipment Dr	$135,000.00
		To equipment		$210,000.00
		To Gain on sale of equipment		$15,000.00
		(To record sale of equipment)
3	1-Jul-23	Cash Dr	$72,000.00
		Accumulated depreciation - Equipment Dr	$135,000.00
		Loss on sale of equipment Dr	$3,000.00
		To equipment		$210,000.00
		(To record sale of equipment)