Answer:
Entry to record the partial year’s depreciation on July 1, 2023:
Debit Depreciation Expense $7,500
Credit Accumulated depreciation account $7,500
1) The machine is sold for $45,500 cash:
Debit Cash $45,500
Debit Accumulated depreciation account $67,500
Credit Gain on asset selling $8,000
Credit Machine asset $105,000
(2) The machine is sold for $25,000 cash
Debit Cash $25,000
Debit Accumulated depreciation account $67,500
Debit Loss on asset selling $12,500
Credit Machine asset $105,000
Explanation:
Rayya Co. uses straight-line depreciation method, Depreciation Expense each year is calculated by following formula:
Annual Depreciation Expense = (Cost of machine − Salvage Value )/Useful Life = ($105,000 - $0)/7 = $15,000
In 2023, the machine is used for 6 months (half year)
Depreciation Expense = $15,000/2 = $7,500
Entry to record the partial year’s depreciation on July 1, 2023:
Debit Depreciation Expense $7,500
Credit Accumulated depreciation account $7,500
On July 1, 2023, Accumulated depreciation = $15,000 x 4 + $7,500 = $67,500
Carrying amount of the machine = $105,000 - $67,500 = $37,500
(1) The machine is sold for $45,500 cash:
Sale price - Carrying amount of the machine = $45,500 - $37,500 = $8,000>0
=> The company recognizes gain on the sales $8,000
Debit Cash $45,500
Debit Accumulated depreciation account $67,500
Credit Gain on asset selling $8,000
Credit Machine asset $105,000
(2) The machine is sold for $25,000 cash
Sale price - Carrying amount of the machine = $25,000 - $37,500 = -$12,500<0
=> The company recognizes loss on the sales $12,500
The entry should be made:
Debit Cash $25,000
Debit Accumulated depreciation account $67,500
Debit Loss on asset selling $12,500
Credit Machine asset $105,000
