Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below.] Onslow Co. purchases a used machine for $192,000 cash on January 2 and readies it for use the next day at a $6,000 cost. On January 3, it is installed on a required operating platform costing $1,200, and it is further readied for operations. The company predicts the machine will be used for six years and have a $23,040 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 the machine's disposal under each of the following separate assumptions View transaction list 1 Record the sale of the used machine for $20,500 cash. 2 Record the sale of the used machine for $82,000 cash. 3 Record the insurance settlement received of $31,000 resulting from the total destruction of the machine in a fire

Explanation / Answer

1)

Book value of machine at the end of 5th year = 199200 - [(192000+6000+1200)/6]*5 = 199200 - 166000 = 33200

Sale value of machine = 20500

Loss on sale of machine = 33200 - 20500 = 12700

Journal Entry:

Cash DR 20500

Profit and Loss DR 12700

Machine CR 33200

2)

Book value of machine at the end of 5th year =199200 - [(192000+6000+1200)/6]*5 = 199200 - 166000 = 33200

Sale value of machine = 82000

Gain on sale of machine = 82000 - 33200 = 48800

Journal Entry:

Cash DR 82000

Profit and Loss CR 48800

Machine CR 33200

3)

Book value of machine at the end of 5th year =199200 - [(192000+6000+1200)/6]*5 = 199200 - 166000 = 33200

Insurance clain received on machine = 31000

Loss on insurance claim received = 33200 - 31000 = 2200

Journal Entry:

Cash DR 31000

Profit and Loss DR 2200

Machine CR 33200

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