On December 31, 2020, 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 Less: Accumulated depreciation 00360,000 Book value $0940,000 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, 2021. An insurance settlement of $430,000 was received for this casualty. Assume the settlement was received immediately. b. On April 1, 2021, Tritt sold the machine for $1,040,000 to 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 $1,100,000.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On December 31, 2020, Tritt Inc. has a machine with a book value of $940,000. The original cost and related
| Machine |
$1,300,000
|
| Less: Accumulated depreciation |
00360,000
|
| Book value |
$0940,000
|
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
a. A fire completely destroys the machine on August 31, 2021. An insurance settlement of $430,000 was received for this casualty. Assume the settlement was received immediately.
b. On April 1, 2021, Tritt sold the machine for $1,040,000 to 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 $1,100,000.
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