Onslow Co. purchases a used machine for $178,000 cash on January 2 and readies i

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

Explanation / Answer

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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

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