Question

Exercise 10-24

On December 31, 2017, Oriole Inc. has a machine with a book value of $1,297,200. The original cost and related accumulated depreciation at this date are as follows.

Machine		$1,794,000
Less: Accumulated depreciation		496,800
Book value		$1,297,200

Depreciation is computed at $82,800 per year on a straight-line basis.

Presented below is a set of independent situations. For each independent situation, indicate the journal entry to be made to record the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal.

A fire completely destroys the machine on August 31, 2018. An insurance settlement of $593,400 was received for this casualty. Assume the settlement was received immediately. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
August 31, 2018
	(to record current depreciation)
August 31, 2018
	(to record loss of the machine)

On April 1, 2018, Oriole sold the machine for $1,435,200 to Dwight Yoakam Company. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
April 1, 2018
	(to record current depreciation)
April 1, 2018
	(to record sale of the machine)

On July 31, 2018, the company donated this machine to the Mountain King City Council. The fair value of the machine at the time of the donation was estimated to be $1,518,000. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
July 31, 2018
	(to record current depreciation)
July 31, 2018
	(to record donation of the machine)

ATtached is a list of accounts

Accounts Payable
Accumulated Depreciation-Building
Accumulated Depreciation-Equipment
Accumulated Depreciation-Machinery
Accumulated Depreciation-Trucks
Buildings
Cash
Common Stock
Contribution Expense
Contribution Revenue
Cost of Goods Sold
Depreciation Expense
Direct Labor
Discount on Notes Payable
Equipment
Factory Overhead
Gain on Disposal of Buildings
Gain on Disposal of Equipment
Gain on Disposal of Machinery
Gain on Disposal of Trucks
Gain on Disposal of Plant Assets
Insurance Expense
Interest Expense
Interest Payable
Interest Revenue
Inventory
Land
Land Improvements
Loss on Disposal of Buildings
Loss on Disposal of Equipment
Loss on Disposal of Machinery
Loss on Disposal of Trucks
Machinery
Maintenance and Repairs Expense
Materials
No Entry
Notes Payable
Organization Expense
Paid-in Capital in Excess of Par - Common Stock
Prepaid Insurance
Retained Earnings
Salaries and Wages Expense
Sales Revenue
Trading Securities
Trucks

Answer 1

1) Depeciation Expense for 2018 (Upto August) = Annual Depreciation*8/12

= $82,800*8/12 = $55,200

Journal Entries (Amounts in $)

Date	Account Titles and Explanation	Debit	Credit
August 31, 2018	Depreciation Expense	55,200
	Accumulated Depreciation-Machinery		55,200
	(To record current depreciation)
August 31, 2018	Cash	593,400
	Accumulated Depreciation-Machinery ($496,800+$55,200)	552,000
	Loss on Disposal of Machinery ($1,794,000-$593,400-$552,000)	648,600
	Machinery		1,794,000
	(To record loss of the machine)

2) Depeciation Expense for 2018 (Upto March) = Annual Depreciation*3/12

= $82,800*3/12 = $20,700

Journal Entries (Amounts in $)

Date	Account Titles and Explanation	Debit	Credit
April 1, 2018	Depreciation Expense	20,700
	Accumulated Depreciation-Machinery		20,700
	(To record current depreciation)
April 1, 2018	Cash	1,435,200
	Accumulated Depreciation-Machinery ($496,800+$20,700)	517,500
	Gain on Disposal of Machinery ($1,435,200+$517,500-$1,794,000)		158,700
	Machinery		1,794,000
	(To record sale of the machine)

3) Depeciation Expense for 2018 (Upto July) = Annual Depreciation*7/12

= $82,800*7/12 = $48,300

Journal Entries (Amounts in $)

Date	Account Titles and Explanation	Debit	Credit
July 31, 2018	Depreciation Expense	48,300
	Accumulated Depreciation-Machinery		48,300
	(To record current depreciation)
July 31, 2018	Contribution Expense	1,518,000
	Accumulated Depreciation-Machinery ($496,800+$48,300)	545,100
	Gain on Disposal of Machinery ($1,518,000+$545,100-$1,794,000)		269,100
	Machinery		1,794,000
	(To record donation of the machine)