Question

Problem 10-6A Disposal of plant assets LO C1, P1, P2

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Onslow Co. purchases a used machine for $144,000 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 $17,280 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.

Problem 10-6A Part 3

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

1. Record the sale of the used machine for $22,000 cash.
2. Record the sale of the used machine for $88,000 cash.
3. Record the insurance settlement received of $32,500 resulting from the total destruction of the machine in a fire.

Answer 1

sale of the used machine for $22000
Account Tittle	Debit	Credit
Cash	$22,000
Accumulated depreciation - machine	$115,600
Loss on sale of machine	$18,400
Machine		$156,000
sale of the used machine for $88,000 cash.
Account Tittle	Debit	Credit
Cash	$88,000
Accumulated depreciation - machine	$115,600
Gain on sale of machine		$47,600
Machine		$156,000
destruction of the machine in a fire.- Received Insurance settlement- Onslow Co.
Account Tittle	Debit	Credit
Cash	$32,500
Accumulated depreciation - machine	$115,600
Loss on sale of machine	$7,900
Machine		$156,000

Working Note Computation of Machinery Capitalization vaue
Purchase Cost	$144,000
Cost for make it ready to use	$10,000
Platform cost	$2,000
Tototal Capitalied Value of Machine	$156,000
Working Note : Computation of Accumulated Dep on Machiney
Dep= (Cost of Machinery - Salvage Value )/ UsefullLife
Accu Dep= Annual DepX No. of year Machine Used
Dep= ((156000-17280)/6= $23120
Accu. Dep:- $23120X 5= $115600