Rayya Co. purchases a machine for $159,600 on January 1, 2019. Straight-line depreciation is taken each year for four years assuming a eight-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 $79,800 cash. (2) The machine is sold for $67,032 cash.
Answered on
For both scenarios, let's calculate the depreciation expense up to July 1, 2023, and then record the entries for the partial year's depreciation and the sale of the machine:
Given:
Purchase price of the machine = $159,600
Useful life = 8 years
No salvage value
Annual depreciation = (Cost - Salvage Value) / Useful life
Annual depreciation = ($159,600 - $0) / 8 = $19,950 per year
Depreciation expense for each full year = $19,950
Now, to calculate the accumulated depreciation up to July 1, 2023 (end of the fourth year):
Accumulated depreciation for 4 years = $19,950 * 4 = $79,800
For scenario (1) - Machine sold for $79,800 cash:
1. Partial year's depreciation on July 1, 2023:
Depreciation for the partial year = $19,950 (as it's sold midway through the year)
Debit: Depreciation Expense: $19,950
Credit: Accumulated Depreciation: $19,950
2. Entry to record the sale:
Debit: Cash: $79,800
Credit: Machine: $159,600
Credit: Accumulated Depreciation: $79,800
Credit: Gain on Sale of Machine: $0 (since the cash received equals the carrying amount)
For scenario (2) - Machine sold for $67,032 cash:
1.Partial year's depreciation on July 1, 2023:
Depreciation for the partial year = $19,950 (as it's sold midway through the year)
Debit: Depreciation Expense: $19,950
Credit: Accumulated Depreciation: $19,950
Entry to record the sale:
Debit: Cash: $67,032
Debit: Loss on Sale of Machine: $12,768 ([$79,800 - $67,032] as the cash received is less than the carrying amount)
Credit: Machine: $159,600
Credit: Accumulated Depreciation: $79,800