A Company Purchased and Installed a Machine on January 1,2006

question 88

Essay

A company purchased and installed a machine on January 1,2006 at a total cost of $72,000.Straight-line depreciation was calculated based on the assumption of a five-year life and no salvage value.The machine was disposed of on July 1,2010.
1.Prepare the general journal entry to update depreciation to July 1,2010.
2.Prepare the general journal entry to record the disposal of the machine under each of these three independent situations:
a. The machine was sold for $22,000 cash
b. The machine was sold for $15,000 cash
c. The machine was totally destroyed in a fire and the insurance company settled the claim for $18,000 cash

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Definitions:

Accrual Basis

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is actually received or paid.

Indirect Method

A way of preparing the cash flow statement, where net income is adjusted for non-cash transactions and changes in working capital.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption or wear and tear.

Accounts Receivable

Outstanding payments from customers for goods or services rendered by a company which have not been settled yet.