Question

Onslow Co. purchases a used machine for $144,000 cash on January 2 and readies it for use the next day at a $8,000 cost. On January 3, it is installed on a required operating platform costing $1,600, 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.

Prepare journal entries to record depreciation of the machine at December 31

Answer 1

cost of the machine to the company will be he cost to bring it is use so machine cost will be

Cost of machine = purchase cost + development cost + erection cost

cost of machine = 144000 + 8000 + 1600 = $153600

Salvage value = 6 years

salvage value = 17280

Per year depreciation on SLM basis = (Cost - salvage value) / No. of years

Depreciation per year = (153600 - 17280) / 06 = 136320/ 06 = $22720 per year

but after end of 5th year machine is disposed off means retired from use without any salvage value.

So, Accumulated depreciation on machine till end of 5th year = (5 x 22720) = $113600

So, Loss on sale of machine = Cost - accumulated depreciation - salvage value

Loss on sale of machine = 153600 - 113600 - 0 = $40000

We can journalize these entries as follows.

Year	Accounts	Debit	Credit
Jan 1st year	Machine	153600
	Cash		153600
	(purchased)
Dec 31 Y1	Depreciation	22720
	Accumulated Depreciation		22720
Dec 31 Y2	Depreciation	22720
	Acc. Dep		22720
Dec 31 Y3	Depreciation	22720
	Acc Dep		22720
Dec 31 Y4	Depreciation	22720
	Acc Dep		22720
Dec 31 Y5	Depreciation	22720
	Acc. Dep		22720
Dec 31 Y5	Accumulated Depreciation	113600
	Loss on sale of machine	40000
	Machine		153600
	(Machine Disposed off wihout any salvage value)