Question

In: Accounting

Citano Company has a used executive charter plane that originally cost $850,000. Straight-line depreciation on the...

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 an $85,000 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 $220,000 cash.
d. Sale of the plane for $200,000 cash.
e. Destruction of the plane in a fire. Citano expects a $198,000 insurance settlement.

Solutions

Expert Solution

Cost of plane $ 850,000
Less; Salvage value $ (85,000)
Depreciable value $ 765,000
Life of the assets 8 years
Depreciation per year ($765,000/8) $    95,625
Accumulated depreciation as on end of sixth year ($95,625*6) $ 573,750

a)

Depreciation expense ($95,625/12*8 months) $ 63,750
Accumulated depreciation - Charter Plane $ 63,750
(To record depreciation expense at the date of disposal)

b)

Cash ($850,000-$573,750-$63,750) $ 212,500
Accumulated depreciation - Charter Plane ($573,750+$63,750) $ 637,500
Charter Plane $ 850,000

c)

Cash   $ 220,000
Accumulated depreciation - Charter Plane ($573,750+$63,750) $ 637,500
Charter Plane $ 850,000
Gain on sale of assets

$      7,500

d)

Cash   $ 200,000
Accumulated depreciation - Charter Plane ($573,750+$63,750) $ 637,500
Loss on sale of assets $    12,500
Charter Plane $ 850,000

e)

Insurance receivable $ 198,000
Accumulated depreciation - Charter Plane ($573,750+$63,750) $ 637,500
Loss on fire $    14,500
Charter Plane $ 850,000

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