Final answer:
The machinery is depreciated over a 5-year period with an annual depreciation of $18,600. The depreciation entry for the half-year till the sale is a debit to Depreciation Expense for $9,300 and a credit to Accumulated Depreciation for $9,300. To record the machine's sale, debit Cash for $27,000, Accumulated Depreciation for $65,100, Loss on Disposal for $900, and credit Machinery for $93,000, realizing a loss of $900.
Step-by-step explanation:
To answer the student's question, let's break it down into two parts. Firstly, the depreciation expense for the machinery from January 1 to July 1 in year four needs to be calculated and recorded. The machinery was purchased for $93,000 with no salvage value and a life expectancy of 5 years. The annual depreciation would be $93,000/5 = $18,600. Given that the machinery was sold in the middle of the year, we accrue half the year's depreciation. Thus, the depreciation for half a year would be $18,600/2 = $9,300.
Journal entry to record depreciation till July 1 in year four:
-
- Debit Depreciation Expense: $9,300
-
- Credit Accumulated Depreciation: $9,300
Secondly, to record the sale of the machine for $27,000 cash, we must account for the book value of the machinery at the time of sale. After 3.5 years of depreciation, the total accumulated depreciation would be $18,600 * 3.5 = $65,100. Therefore, the book value would be the original cost minus accumulated depreciation, $93,000 - $65,100 = $27,900. When the machine is sold for $27,000, a loss of $900 is realized since the sale proceeds are less than the book value.
Journal entry to record the sale of the machine:
-
- Debit Cash: $27,000
-
- Debit Accumulated Depreciation: $65,100
-
- Debit Loss on Disposal of Machinery: $900
-
- Credit Machinery: $93,000