Question

E9.25 (L.05, 6) (Entries for Disposition of Assets) On December 31, 2025, Tritt inc has a machine whth a book value of 5940,000 . The original cost and related accumulated depreciation at this date are as follows. 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, 2026. An insurance settlement of $430,000 was received for this casualty. Assume the settlement was received immediately. b. On April 1, 2026, Tritt sold the machine for $1,040,000 to Yoakam Company. "c. On July 31, 2026, 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.

Answer 1

The journal entries for the transactions in each independent situation are provided with supporting explanations.

For each independent situation, here are the journal entries to be made to record the transactions:

a. Fire Destroys the Machine, Insurance Settlement Received:

Debit: Insurance Receivable $430,000

Credit: Machine $594,000

Credit: Accumulated Depreciation—Machine $270,000

Credit: Loss on Disposal of Machine $154,000 ([$594,000 - $270,000] - $430,000)

b. Machine Sold to Yoakam Company:

Debit: Cash $1,040,000

Debit: Accumulated Depreciation—Machine $300,000 ([$60,000 x 5 years] + [$60,000 x 3/12 years])

Credit: Machine $594,000

Credit: Gain on Sale of Machine $746,000 ([$1,040,000 - $594,000] + $300,000)

c. Machine Donated to Mountain King City Council:

Debit: Accumulated Depreciation—Machine $300,000 ([$60,000 x 5 years] + [$60,000 x 7/12 years])

Debit: Donation Expense $806,000 ([$1,100,000 - $594,000] + $300,000)

Credit: Machine $594,000

Please note that in situation (c), the debit to "Donation Expense" represents the reduction in the book value of the machine and the contribution to the Mountain King City Council. This entry assumes that the company recognizes the fair value of the donated machine as an expense. The exact accounts and amounts may vary based on the company's accounting policies and the specific circumstances of the donation. It's recommended to consult with accounting professionals for detailed guidance tailored to the company's situation.