Ben Company has a used executive charter plane that originally cost $1,000,000. Straight-line depreciation on the plane has been recorded for six years, with a $100,000 expected salvage value at the end of its estimated eight-year useful life. The last depreciation entry was made at the end of the sixth year. Eight months into the seventh year, Ben disposes of the plane. Required Prepare journal entries to record: a. Depreciation expense to the date of disposal. b. Sale of the plane for cash at its book value. c. Sale of the plane for $300,000 cash. d. Sale of the plane for $220,000 cash. e. Destruction of the plane in a fire. Ben expects a $210,000 insurance settlement. General Journal Reference Description Debit Credit a. To record depreciation expense for 8 months. b. Cash To record sale of airplane. c. Cash Airplane To record sale of airplane. d. Cash Accumulated Depreciation - Airplane To record sale of airplane. e. Loss of insurance settlement Accumulated Depreciation - Airplane To record insurance claim on airplane destroyed by fire.
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.
Disposal of Plant Asset
Ben Company has a used executive charter plane that originally cost $1,000,000. Straight-line
Required
Prepare
a. Depreciation expense to the date of disposal.
b. Sale of the plane for cash at its book value.
c. Sale of the plane for $300,000 cash.
d. Sale of the plane for $220,000 cash.
e. Destruction of the plane in a fire. Ben expects a $210,000 insurance settlement.
| General Journal | |||
|---|---|---|---|
| Reference | Description | Debit | Credit |
| a. | |||
| To record depreciation expense for 8 months. | |||
| b. | Cash | ||
| To record sale of airplane. | |||
| c. | Cash | ||
| Airplane | |||
| To record sale of airplane. | |||
| d. | Cash | ||
| To record sale of airplane. | |||
| e. | |||
| Loss of insurance settlement | |||
| Accumulated Depreciation - Airplane | |||
| To record insurance claim on airplane destroyed by fire. |
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