On December 31, 2013, Grey Inc. owns a machine with a carrying amount of $940,000. The original cost and accumulated depreciation for the machine on this date are as follows:
Machine ........................ $1,300,000
Accumulated depreciation ................. 360,000
$940,000
Depreciation is calculated at $60,000 per year on a straight-line basis.
Instructions
A set of independent situations follows. For each situation, prepare the journal entry for Grey Inc. to record the transaction. Ensure that depreciation entries are recorded to update the machine's carrying amount before its disposal.
(a) A fire completely destroys the machine on August 31, 2014. An insurance settlement of $430,000 was received for this casualty. Assume the settlement was received immediately.
(b) On April 1, 2014, Grey sold the machine for $1,040,000 to Dwight Company.
(c) On July 31, 2014, the company donated this machine to the Dartmouth City Council. The machine's fair value at the time of the donation was estimated to be $1.1 million.