Rayya Co. purchases a machine for $159,600 on January 1, 2019. Straight-line depreciation is taken each year for four years assuming a eight-year life and no salvage value. The machine is sold on July 1, 2023, during its fifth year of service. Prepare entries to record the partial year’s depreciation on July 1, 2023, and to record the sale under each seperate situation. (1) The machine is sold for $79,800 cash. (2) The machine is sold for $67,032 cash.

Solution and Explanation:

Depreciation expense is calculated as follows:

Depreciation expense = Cost of machine minus residul value divide useful life of asset

= (159600 - 0) / 8 = 19950

Thus, annual depreciation expense is $19950

Partial year depreciation expense = Anuual depreciation multiply period

= 19950 mulitply 0.5 = $9975

Thus, partial depreciation expense for the 01st january 2023 to July 1, 2023 is $9975

the jorunal entry is as follows:

Depreciation account Dr.    9975 ($)

Accumulated depreciation Cr.   9975 ($)

1. if machine is sold for $79800 cash

Cash                                     79800

Accumulated depreciation   89775

         gain on sale of machinery       9975

         Machinery                                   159600

2. If machine is sold for $67032

Cash                                     67032

Accumulated depreciation   89775

loss on sale of machinery       2793

         Machinery                                   159600