Question

On December 31, 2020, Blossom Inc. has a machine with a book value of $1,034,000. The original cost and related accumulated depreciation at this date are as follows. Machine $1,430,000 Less: Accumulated depreciation 396,000 Book value $1,034,000 Depreciation is computed at $66,000 per year on a straight-line basis. Presented below is a set of independent situations. For each independent situation, indicate the journal entry to be made to record the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal.

Answer 1

A)

Loss on Fire 280,720 debit

Acc depreciation 506,000 debit

Cash 643,280 debit

Equipment 1,430,000 credit

B)

Acc depreciation 526,000 debit

Cash 1,555,480 debit

Equipment 1,430,000 credit

Gain at disposal 608,480 credit

C)

charitable contribution 1,645,600 debit

accumulated depreciation 500,500 debit

equipment 1,430,000 credit

gain on disposal 716,100 credit

Questions

A Fire completely destroys the machine on August 31, 2021. An insurance settlement of $643,280 was received for this casualty. Assume the settlement was received immediately.

B On April 1, 2021, Tritt sold the machine for $1,555,840 to Dwight Yoakam Company.

C On July 31, 2021, the company donated this machine to the Mountain King City Council. The fair value of the machine at the time of the donation was estimated to be $1,645,600.

Step-by-step explanation:

In all cases, the company will write-off the equipment and acc depreciation

A.-

complete depreciation for 2020: 66,000

depreciation until August 31th: 66,000 x 8/12 = 44,000

Total depreciation 104,000

book value 1,034,000 - 104,000 = 924,000

loss: 924,000 - 643,280 = 280,72‬0

b)

complete depreciation for 2020: 66,000

depreciation until April 31th: 66,000 x 4/12 = 22,000

Total depreciation 88,000

book value 1,034,000 - 88,000 = 946,000

1,555,480 - 946,000 = 608,480

c)

complete depreciation for 2020: 66,000

depreciation until July 31th: 66,000 x 7/12 = 38,500

Total depreciation 104,500

book value 1,034,000 - 104,500 = 929,500

gain: 1,645,600 - 929,500 = 716.100