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Problem 8-6A Disposal of plant assets LO C1, P1, P2

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Onslow Co. purchased a used machine for $192,000 cash on January 2. On January 3, Onslow paid $10,000 to wire electricity to the machine and an additional $2,000 to secure it in place. The machine will be used for six years and have a $23,040 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of.

Problem 8-6A Part 3

3. Prepare journal entries to record the machine’s disposal under each separate situation: (a) it is sold for $23,000 cash; (b) it is sold for $92,000 cash; and (c) it is destroyed in a fire and the insurance company pays $33,500 cash to settle the loss claim.

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No	Date	General Journal	Debit	Credit
1	Dec 31	Cashselected answer correct	23,000selected answer correct	not attempted
		Accumulated depreciation—Machineryselected answer correct	150,800selected answer correct	not attempted
		Loss on sale of machineryselected answer correct	32,700selected answer incorrect	not attempted
		Machineryselected answer correct	not attempted	204,000

Answer 1

1
Date	General Journal	Debit	Credit
Dec 31	Accumulated Depreciation-Machinery	150800
	Cash	23000
	Loss on sale of Machinery	30200
	Machinery		204000
2
Date	General Journal	Debit	Credit
Dec 31	Accumulated Depreciation-Machinery	150800
	Cash	92000
	Machinery		204000
	Gain on sale of Machinery		38800
3
Date	General Journal	Debit	Credit
Dec 31	Accumulated Depreciation-Machinery	150800
	Cash	33500
	Loss from fire	19700
	Machinery		204000

Workings:
Cost of Machinery	204000	=192000+10000+2000
Less: Salvage value	23040
Depreciable cost	180960
Divide by useful life	6
Annual Depreciation	30160
Accumulated Depreciation	150800	=30160*5