Answer:
To record he partial year’s depreciation on July 1, 2022
Dr Depreciation expenses $7,500
Cr Accumulated Depreciation $7,500
(to record he partial year’s depreciation on July 1, 2022)
(1) To record disposal as machine is sold for $45,500 cash
Dr Cash $45,500
Dr Accumulated Depreciation $52,500
Cr Loss on asset disposal $7,000
Cr Machinery $105,000
(2) To record insurance settlement of $25,000 due to the machine’s total destruction in a fire:
Dr Cash $25,000
Dr Accumulated Depreciation $52,500
Cr Loss on asset disposal $27,500
Cr Machinery $105,000
Explanation:
The depreciation expense for each year is (105K-0)/7 = $15K => Half-year depreciation expenses = 15K/2 = $7.5K. Thus in Jul 1,2022, we need to book $7K of depreciation expenses for half-year expenses of 2020.
To Jul 1, 2022, the asset has been on book for 3.5 years, thus the accumulated depreciation relating to the asset is 3.5 x 15K = $52.5K which makes the net book value of the asset $52.5K.
So, the sold of asset at $45,500 will results to a loss of $7,000 (45.5K-52.5K) and the insurance settlement of $25,000 will results to a loss of $27,500 (25K - 52.5K)
