Question

Chapter 8 Question 5:

Onslow Co. purchases a used machine for $288,000 cash on January 2 and readies it for use the next day at a $10,000 cost. On January 3, it is installed on a required operating platform costing $2,000, and it is further readied for operations. The company predicts the machine will be used for six years and have a $34,560 salvage value. Depreciation is to be charged on a straight-line basis. On December 31, at the end of its fifth year in operations, it is disposed of.

3. Prepare journal entries to record the machine's disposal under each of the following separate assumptions:

Record the sale of the used machine for $20,000 cash.

Note: Enter debits before credits.

	Date General Journal Debit Credit Dec 31 Record the sale of the used machine for $80,000 cash. Note: Enter debits before credits. Date General Journal Debit Credit Dec. 31 Record the insurance settlement received of $30,500 resulting from the total destruction of the machine in a fire. Note: Enter debits before credits. Date General Journal Debit Credit Dec 31

Answer 1

	Cost of machine
	purchase price				288,000
	Ready to use				10,000
	cost of operating platform				2,000
	Total cost of machine				300,000
	Depreciation expense = (300,000-34560)/6
			44240
1A)	Date	Accounting titles & explanations				Debit	Credit
	2-Jan	Machine				288,000
		cash					288,000
		Machine				10,000
		cash					10,000
		machine				2,000
		cash					2,000
	31-Dec	Depreciation expense				44,240
		Accumulated depreciation					44,240
		if entry for fifth year depreciation is required pass the following entry
	31-Dec	Depreciation expense				44,240
		Accumulated depreciation					44,240
1b)	31-Dec	Cash				20,000
		Accumulated dep		(37200*5)		221200
		loss on sale of machine				58,800
		Machine					300,000
	31-Dec	Cash				80,000
		Accumulated dep				221200
		Gain on sale of machine					1,200
		Machine					300,000
	31-Dec	Cash				30,500
		Accumulated dep				221200
		loss on disposal				48,300
		Machine					300,000