Question

Onslow Co. purchased a used machine for $178,000 cash on January 2. On January 3, Onslow paid $2,840 to wire electricity to the machine and an additional $1,160 to secure it in place. The machine will be used for six years and have a $14,000 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of. Problem 10-6A Disposal of plant assets C1 P1 P2 Required 1. Prepare journal entries to record the machine's purchase and the costs to ready it for use. Cash is paid for all costs incurred. 2. Prepare journal entries to record depreciation of the machine at December 31 of (a) its first year of operations and (b) the year of its disposal. 3. Prepare journal entries to record the machine's disposal under each separate situation: (a) it is sold for $15.000 cash; (b) it is sold for 550,000 cash; and (c) it is destroyed in a fire and the insurance company pays $30,000 cash to settle the loss claim. Check (26) Dept. Exp. $28.000 (30De Loss from Fire, $12.000

Answer 1

	Cost of machine
	purchase price				178,000
	Ready to use				2,840
	cost of operating platform				1,160
	Total cost of machine				182,000
	Depreciation expense = (182000-14000)/6
			28000
1)	Date	Accounting titles & explanations				Debit	Credit
	2-Jan	Machine				178,000
		cash					178,000
		Machine				2,840
		cash					2,840
		machine				1,160
		cash					1,160
2)	31-Dec	Depreciation expense				28,000
		Accumulated depreciation					28,000
		(for first year)
	31-Dec	Depreciation expense				28,000
		Accumulated depreciation					28,000
		(for year of disposal)
3-a)	31-Dec	Cash				15,000
		Accumulated dep		(28000*5)		140000
		loss on sale of machine				27,000
		Machine					182,000
3-b)	31-Dec	Cash				50,000
		Accumulated dep				140000
		Gain on sale of machine					8,000
		Machine					182,000
3-c)	31-Dec	Cash				30,000
		Accumulated dep				140000
		loss on disposal				12,000
		Machine					182,000