Rayya Co. purchases and installs a machine on January 1, 2017, at a total cost of $92,400. Straight-line depreciation is taken each year for four years assuming a seven-year life and no salvage value. The machine is disposed of on July 1, 2021, during its fifth year of service.

Rayya Co. purchases and installs a machine on January 1, 2017, at a total cost of $92,400. Straight-line depreciation is taken each year for four years assuming a seven-year life and no salvage value. The machine is disposed of on July 1, 2021, during its fifth year of service.
  
Prepare entries to record the partial year’s depreciation on July 1, 2021, and to record the disposal under the following separate assumptions: (1) The machine is sold for $39,600 cash. (2) An insurance settlement of $31,680 is received due to the machine’s total destruction in a fire.

Explanation

Annual depreciation = $92,400 / 7 years = $13,200
Depreciation for 6 months in 2021 = $13,200 × 6/12 = $6,600

 
(1) & (2)
Total accumulated depreciation at date of disposal:
 

Four years 2017-2020 (4 × $13,200)	$	52,800
Partial year 2021 (6/12 × $13,200)		6,600
Total accumulated depreciation	$	59,400

Book value of machinery = $92,400 − $59,400 = $33,000

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