Candy Craze purchased and installed a machine on January 1, 2023, at a total cost of $296,800. Straight-line depreciation was taken each year for four years, based on the assumption of a seven-year life and no residual value. The machine
Candy Craze purchased and installed a machine on January 1, 2023, at a total cost of $296,800. Straight-line depreciation was taken each year for four years, based on the assumption of a seven-year life and no residual value. The machine was disposed of on July 1, 2027, during its fifth year of service. Candy Craze’s year-end is December 31.
Required
Present the entries to record the partial year’s depreciation on July 1, 2027, and to record the disposal under each of the following unrelated assumptions:
a. The machine was sold for $112,000 cash.
b. Candy Craze received an insurance settlement of $96,000 resulting from the total destruction of the machine in a fire.
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Fundamental Accounting Principles Volume 2
ISBN: 9781260881332
17th Canadian Edition
Authors: Kermit D. Larson, Heidi Dieckmann, John Harris
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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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