Question

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

3. Prepare journal entries to record the machine's disposal under each of the following separate assumptions:

1. Record the sale of the used machine for $23,500 cash.
2. Record the sale of the used machine for $94,000 cash.
3. Record the insurance settlement received of $34,000 resulting from the total destruction of the machine in a fire.

Answer 1

Journal Entries

No	Date	Account Title and Explanation	Debit	Credit
a	Dec.31	Cash	$23,500
		Accumulated Depreciation - Machinery ($37,200 5)	$186,000
		Loss On Disposal - Macinery	$42,500
		Machinery		$252,000
b	Dec.31	Cash	$94,000
		Accumulated Depreciation - Macinery (37,200 × 5)	$186,000
		Gain on Disposal - Machinery		$28,000
		Machinery		$252,000
C	Dec.31	Cash	$34,000
		Accumulated Depreciation - Macinery (37,200 × 5)	$186,000
		Loss on Disposal	$32,000
		Machinery		$252,000

Explanation;

Purchase Price = $240,000

Ready to Use = $10,000

Installation Cost = $2,000

Total Cost of Machine = $240,000 + $10,000 + $2,000 = $252,000

Depreciation = $252,000 - $28,800 / 6 = $37,200