On December 31, 2008,
Travis Tritt Inc. has a machine with a book value of $940,000. The original
cost and related accumulated depreciation at this date are as follows.
Machine $1,300,000
Accumulated
depreciation 360,000
$ 940,000
Depreciation is
computed at $60,000 per year on a straight-line basis.
Instructions
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.
(a) A fire completely
destroys the machine on August 31, 2009. An insurance settlement of $430,000
was received for this casualty. Assume the settlement was received immediately.
(b) On April 1, 2009,
Tritt sold the machine for $1,040,000 to Dwight Yoakam Company.
(c) On July 31, 2009,
the company donated this machine to the Mountain King City Council. The fair
market value of the machine at the time of the donation was estimated to be
$1,100,000.
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(a)
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Depreciation Expense (8/12 X
$60,000)....................................
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40,000
|
|
|
|
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Accumulated Depreciation—Machine...........................
|
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40,000
|
|
|
|
|
|
|
|
|
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Loss on Disposal of Machine.......................................................
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470,000
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|
|
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($1,300,000 – $400,000) – $430,000
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|
|
|
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Cash ...............................................................................................
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430,000
|
|
|
|
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Accumulated Depreciation—Machine.......................................
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400,000
|
|
|
|
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($360,000 + $30,000)
|
|
|
|
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Machine...............................................................................
|
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1,300,000
|
|
|
|
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|
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(b)
|
Depreciation Expense (3/12 X
$60,000)....................................
|
15,000
|
|
|
|
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Accumulated Depreciation—Machine...........................
|
|
15,000
|
|
|
|
|
|
|
|
|
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Cash ...............................................................................................
|
1,040,000
|
|
|
|
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Accumulated Depreciation—Machine.......................................
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375,000
|
|
|
|
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($360,000 + $15,000)
|
|
|
|
|
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Machine...............................................................................
|
|
1,300,000
|
|
|
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Gain
on Sale of Machine..................................................
|
|
115,000*
|
|
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*$1,040,000 – ($1,300,000 – $375,000)
|
|
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(c)
|
Depreciation Expense (7/12 X
$60,000)....................................
|
35,000
|
|
|
|
|
Accumulated Depreciation—Machine...........................
|
|
35,000
|
|
|
|
|
|
|
|
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Contribution Expense...................................................................
|
1,100,000
|
|
|
|
|
Accumulated Depreciation—Machine.......................................
|
395,000
|
|
|
|
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($360,000 + $35,000)
|
|
|
|
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Machine...............................................................................
|
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1,300,000
|
|
|
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Gain
on Disposal of Machine..........................................
|
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195,000*
|
|
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*$1,100,000 – ($1,300,000 – $395,000)
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