Question & Answer: Assignment Onslow Co. purchases a used machine for $240,000 cash on January 2 and rea…..

Assignment

Onslow Co. purchases a used machine for $240,000 cash on January 2 and readies it for use the next day at a cost of $10,000. 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 $28,800 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.

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Required:

1. Prepare journal entries to record the machine’s purchase and the costs to ready and install it. Cash is paid for all costs incurred.

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

(a) Its first year in operations.

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 $22,500 cash.

(b) It is sold for $90,000 cash.

(c) It is destroyed in a fire and the insurance company pays $33,000 cash to settle the loss claim.

Expert Answer

 

total cost of machine
purchase price 240,000
ready to use 10,000
installation cost 2,000
total cost of machine 252,000
Depreciation expense = (252,000-28,800)/6
37200
1) Accounting title & Explanations Debit Credit
2-Jan Machine 252,000
cash 252,000
2)
31-Dec Depreciation expense 37,200
1st yr Accumulated depreciation 37,200
b)
fifth year Depreciation expense 37,200
Accumulated depreciation 37,200
3
a) Cash 22,500
Acumulated depreciation(37200*5) 186000
loss on disposal 43,500
machine/equipment 252,000
b) Cash 90,000
Acumulated depreciation(37200*5) 186,000
Gain on disposal 24,000
machine/equipment 252,000
c) Cash 33,000
Acumulated depreciation(37200*5) 186,000
loss on disposal 33,000
machine/equipment 252,000

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