Disposal of Plant Asset Citano Company has a used executive charter plane that o
ID: 2453073 • Letter: D
Question
Disposal of Plant Asset Citano Company has a used executive charter plane that originally cost $800,000. Straight-line depreciation on the plane has been recorded for 6 years, with an $80,000 expected salvage value at the end of its estimated 8 year useful life. The last depreciation entry was made at the end of the sixth year. 8 months into the seventh year, Citano disposes of the plane.
Required
Prepare journal entries to record:
a. Depreciation expense to the date of disposal. Calculate depreciation expense for 8 months.
b. Sale of the plane for cash at its book value. Calculate the accumulated depreciation for the airplane.
c. Sale of the plane for $215,000 cash. Calculate the accumulated depreciation for the airplane and the gain on sale of plant assets.
d. Sale of the plane for $195,000 cash. Calculate the accumulated depreciation for the airplane and the loss on sale of plant assets.
e. Destruction of the plane in a fire. Citano expects a $190,000 insurance settlement. Calculate the accumulated depreciation for the airplane and the loss of insurance settlement.
Explanation / Answer
Depreciation charged per year = (800000-80000)/8 = $90000 per year
a.
Depreciation expense to the date of disposal i.e. depreciation expense for 8 months = 90000*8/12 = $60000
Entry-
Depreciation a/c Dr 60000
To Accumulated depreciation a/c 60000
(Being dereciation expense for period of 8 months)
b.
Accumulated depreciation till the date of sale = (90000*6)+60000 = $600000
Sale at book value i.e.$200000(800000- 600000) therefore no gain and no loss
Entry-
Accumulated depreciation a/c Dr 600000
Cash a/c Dr 200000
To Plant asset (Airplane) a/c 800000
(Being asset sold at book value)
c.
Entry-
Accumulated depreciation a/c Dr 600000
Cash a/c Dr 215000
To Plant asset (Airplane) a/c 800000
To Gain on sale of plant asset a/c 15000
(Being asset sold at gain)
d.
Entry-
Accumulated depreciation a/c Dr 600000
Cash a/c Dr 195000
Loss on sale of plant asset a/c Dr 5000
To Plant asset (Airplane) a/c 800000
(Being plant asset sold at a loss)
e.
Accumulated depreciation a/c Dr 600000
Insurance Company a/c Dr 190000
Loss on sale of plant asset a/c Dr 10000
To Plant asset (Airplane) a/c 800000
(Being plant asset destructed in a fire resulting in a loss)