Rayya Co. purchases a machine for $105,000 on January 1, 2019. Straight-line depreciation is taken each year for four years assuming a seven-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 separate situation. (1) The machine is sold for $45,500 cash. (2) The machine is sold for $25,000 cash.

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24-12-2019
Business

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Rayya Co. purchases a machine for $105,000 on January 1, 2019. Straight-line depreciation is taken each year for four years assuming a seven-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 separate situation. (1) The machine is sold for $45,500 cash. (2) The machine is sold for $25,000 cash.

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phamdiep1810 phamdiep1810 · Answer 1 · 2019-12-25T06:58:56+01:00

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

Zviko Zviko · Answer 2 · 2022-04-05T15:27:13+02:00

Entry to record the partial year’s depreciation on July 1, 2023

Debit : Depreciation Expense $7,500

Credit : Accumulated Depreciation $7,500

Entry to record the sale under each separate situation.

(1) The machine is sold for $45,500 cash.

Debit : Cash $45,500

Debit : Accumulated Depreciation $67,500

Credit : Asset at Cost $105,000

Credit : Profit and Loss $8,000

(2) The machine is sold for $25,000 cash.

Debit : Cash $25,000

Debit : Accumulated Depreciation $67,500

Debit : Profit and Loss $12,500

Credit : Asset at Cost $105,000

Straight line depreciation

Straight line depreciation charges the same amount of depreciation for the period the asset is in use in the business.

The attached image illustrates how this charge is applied consistanly over the period the asset is in use in the business.

Deprecition charge is calculated as :

Depreciation Expense = (Cost - Salvage Value) ÷ Useful Life

Calculations of depreciation

Cost = $105,000

Salvage Value = $0

Useful life = 7

thus,

Depreciation charges for the years the asset is in use are :

2019 = $15,000

2020 = $15,000

2021 = $15,000

2022= $15,000

2023 = $7,500 (half year in use means half year depreciation)

Accumulated Depreciation

Accumulated Depreciation = Total of all depreciation charges on asset to date of sale

= $15,000 x 4 + $7,500

= $67,500

In conclusion, straight line depreciation method charges the same amount of depreciation for each year the asset is in use in the business. A partial depreciation has to be provided for in the year asset is sold.

Learn more about straight line depreciation and recording here : https://brainly.com/question/24279065