Problem 8-6A Machine (used) purchased Jan 2 for $178,000 cash and readies it for
ID: 2464172 • Letter: P
Question
Problem 8-6A
Machine (used) purchased Jan 2 for $178,000 cash and readies it for use the next day at a $2840 cost. Jan 3 installed on 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 Dec 31 at the end of its fifth year in operations it is disposed of.
Questions:
1. Prepare journal entries to record the machine’s purchase and the cost’s to ready and install it. Cash is paid for all costs incurred.
2. Prepare journal entries to record depreciation of the machine at Dec 31 of a) its first year in operations and b) the year of its disposal.
3. 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 c) it is destroyed in a fire and the insurance company pays 30,000 cash to settle the loss claim.
Debit Credit
Jan. 2
Jan. 3
Jan. 3
a. First year
Dec. 31
b. Fifth year
Dec. 31
Accumulated depreciation at the date of disposal
Book value at the date of disposal
a. Sold for $15,000 cash Debit Credit
Dec. 31
b. Sold for $50,000 cash
Dec. 31
c. Destroyed in fire and collected $30,000 cash from insurance co.
Dec. 31
Jan. 2
Jan. 3
Jan. 3
Explanation / Answer
Debit Credit
Jan. 2
Machinery
180,840
Cash
180,840
Jan. 3
Machinery
1,160
Cash
1,160
a. First year
Amount of Depreciation = (178,000 + 2,840 + 1,160 - 14,000)/6 = $28,000 per year
Dec. 31
Depreciation expense
28,000
Accumulated Depreciation-Machinery
28,000
b. Fifth year
Dec. 31
Depreciation expense
28,000
Accumulated Depreciation-Machinery
28,000
Accumulated depreciation at the date of disposal
Book value at the date of disposal
Total Cost of the Machine
182,000
Less: Accumulated depreciation (28,000 x 5)
(140,000)
Book value of machine
42,000
a. Sold for $15,000 cash Debit Credit
Dec. 31
Cash
15,000
Loss on sale of Machinery
27,000
Accumulated Depreciation-Machinery
140,000
Machinery Account
182,000
b. Sold for $50,000 cash
Dec. 31
Cash
50,000
Accumulated Depreciation-Machinery
140,000
Profit on sale of Machinery
8,000
Machinery Account
182,000
c. Destroyed in fire and collected $30,000 cash from insurance co.
Dec. 31
Cash
30,000
Loss by fire
12,000
Accumulated Depreciation-Machinery
140,000
Machinery
182,000
Jan. 2
Machinery
180,840
Cash
180,840
Jan. 3
Machinery
1,160
Cash
1,160
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