Answer:
Journal Entry for the partial year's depreciation on July 1, 2023:
Debit Depreciation Expense $7,500
Credit Accumulated Depreciation $7,500
1) When the machine is sold for $45,500 in cash:
Debit Cash $45,500
Debit Accumulated Depreciation $67,500
Credit Gain from Sale of Asset $8,000
Credit Machine Asset $105,000
(2) When the machine is sold for $25,000 in cash
Debit Cash $25,000
Debit Accumulated Depreciation $67,500
Debit Loss from Sale of Asset $12,500
Credit Machine Asset $105,000
Explanation:
Rayya Co. utilizes the straight-line depreciation approach, calculating the yearly Depreciation Expense using the formula:
Annual Depreciation Expense = (Cost of machine − Salvage Value )/Useful Life = ($105,000 - $0)/7 = $15,000
The machine was used for 6 months in 2023 (half a year)
Depreciation Expense = $15,000/2 = $7,500
The journal entry for partial year's depreciation on July 1, 2023 is recorded as follows:
Debit Depreciation Expense $7,500
Credit Accumulated Depreciation $7,500
By July 1, 2023, the total Accumulated Depreciation amounts to = $15,000 x 4 + $7,500 = $67,500
Carrying value of the machine = $105,000 - $67,500 = $37,500
(1) If the machine is sold for $45,500 cash:
Calculation of Sale Price minus Carrying Value = $45,500 - $37,500 = $8,000>0
=> Therefore, the company acknowledges a gain of $8,000 on the sale
Debit Cash $45,500
Debit Accumulated Depreciation $67,500
Credit Gain from Sale of Asset $8,000
Credit Machine Asset $105,000
(2) If the machine is sold for $25,000 cash
Calculation of Sale Price minus Carrying Value = $25,000 - $37,500 = -$12,500<0
=> Thus, the company records a loss of $12,500 on the sale
The entry needed is as follows:
Debit Cash $25,000
Debit Accumulated Depreciation $67,500
Debit Loss from Sale of Asset $12,500
Credit Machine Asset $105,000
