In: Accounting
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.
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 |