Question

In: Accounting

On January 1, Walker purchases a used machine for $150,000 and readies it for use the...

On January 1, Walker purchases a used machine for $150,000 and readies it for use the next day at a cost of $3,510. On January 4, it is mounted on a required operating platform costing $4,600, and it is further readied for operations. Management estimates the machine will be used for seven years and have an $18,110 salvage value. Depreciation is to be charged on a straight-line basis. On December 31, at the end of its sixth year of use, the machine is disposed of.

Required:

  1. Prepare journal entries to record the machine's purchase and the costs to ready and install it. Cash is paid for all costs incurred.
  2. Prepare journal entries to record depreciation of the machine at December 31 of (a) its first year in operations and (b) the year of its disposal.
  3. Prepare journal entries to record the machine's disposal under each of the following separate assumptions: (a) it is sold for $28,000 cash; (b) it is sold for $52,000 cash; and (c) it is destroyed in a fire and the insurance company pays $25,000 cash to settle the loss claim.

Solutions

Expert Solution

Annual depreciation:
Total cost (150000+3510+4600) 158110
Less: Salvage value 18110
Deprecoable cost 140000
Divide: Lie 7
Annual depreciation: 20000
Journal entries
S.no. Accounts title and explanations Debit $ Credit
0101. Year1 machine equipment 150000
     Cash account 150000
(for purchase of machine)
02.01. Yr01 machine equipment 3510
     Cash account 3510
(for installation charges)
04.01. yr01 machine equipment 4600
     Cash account 4600
(fr installation of platform)
b.
31.12.Yr01 Depreciation expense 20000
    Accumulated dep-Equipment 20000
(for depreciation charged)
31.12 Yr06 Depreciation expense 20000
    Accumulated dep-Equipment 20000
(for depreciation charged)
c.
Case-a
31.12.Yr06 Accumulated dep-Equipment 120000
Cash 28000
Loss on sale of Assets 10110
    Machine equipment 158110
(for sale of equipment)
case-b
31.12.Yr06 Accumulated dep-Equipment 120000
Cash 52000
    Gain on sale of assets 13890
    Machine equipment 158110
(for sale of equipment)
case-c
31.12.Yr06 Accumulated dep-Equipment 120000
Cash 25000
Loss on sale of Assets 13110
    Machine equipment 158110
(for claim from insurance on equipment)

ekkarill92 answered 1 year ago
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