Question

Onslow Co. purchases a used machine for $178,000 cash on January 2 and readies it for use the next day at a $2,840 cost. On January 3, it is installed on a required operating platform costing $1,160, and it is further readied for operations. The company predicts the machine will be used for six years and have a $14,000 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.

Required

Prepare journal entries to record the machine’s purchase and the costs to ready and install it. Cash is paid for all costs incurred.

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.

Check (2b) Depr. Exp., $28,000

Prepare journal entries to record the machine’s disposal under each of the following separate assumptions: (a) it is sold for $15,000 cash; (b) it is sold for $50,000 cash; and (c) it is destroyed in a fire and the insurance company pays $30,000 cash to settle the loss claim.

(3c) Dr. Loss from Fire, $12,000

Answer 1

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Journal entries to record the machine’s purchase and the costs to ready and install it
Date	Account	Debit	Credit
January 2	Machinery	178000
	Cash		178000
	(to record the machine’s purchase)
January 3	Machinery	2840
	Cash		2840
	(Being recorded costs to ready)
January 3	Machinery	1160
	Cash		1160
	(Being recorded costs of installation)
journal entries to record depreciation of the machine at December 31
a. First year operations
Date	Account	Debit	Credit
December 31	Depreciation Expense (Working-1)	28000
	Accumulated Depreciation		28000
	(Being Dep recorded)
b. the year of Disposal
December 31	Depreciation Expense (Working-1)	28000
	Accumulated Depreciation		28000
	(Being Dep recorded)
journal entries to record the machine’s disposal
a. Sold for $15000
Date	Account	Debit	Credit
December 31	Cash	15000		Sold in 15000
	Loss on Sale of Machinery (Working-2)	27000		Book Value 42000-15000
	Accumulated Depreciation	140000		28000*5 year
	Machinery		182000	Cost of Machinery
a. Sold for $50000
Date	Account	Debit	Credit
December 31	Cash	50000		Sold in 50000
	Accumulated Depreciation	140000		28000*5 year
	Gain on Sale of Machinery (Working-2)		8000	50000-Book Value 42000
	Machinery		182000	Cost of Machinery
c. Distroys in fire and get 30000 from insurance
Date	Account	Debit	Credit
December 31	Cash	30000		Sold in 30000
	Loss from fire (Working-2)	12000		Book Value 42000-30000
	Accumulated Depreciation	140000		28000*5 year
	Machinery		182000	Cost of Machinery

Working-1
Invoice price of machinery	178000
add: Ready to use cost	2840
add: Installation	1160
Total Cost of Machinery	182000
Less: Salvage Value	14000
Depreciable Value	168000
Life	6 Year
Depreciation 168000/6	28000
Working-2
Total Cost of Machinery	182000
Less:5 Year Dep 28000*5	140000
Book Value	42000