Question

Problem 8-6A Disposal of plant assets LO C1, P1, P2

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Onslow Co. purchased a used machine for $240,000 cash on January 2. On January 3, Onslow paid $10,000 to wire electricity to the machine and an additional $2,000 to secure it in place. The machine will be used for six years and have a $28,800 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of.

Problem 8-6A Part 3

3. Prepare journal entries to record the machine’s disposal under each separate situation: (a) it is sold for $21,000 cash; (b) it is sold for $84,000 cash; and (c) it is destroyed in a fire and the insurance company pays $31,500 cash to settle the loss claim.

Answer 1

3	31-Dec	Cash				21,000
		Accumulated dep		(37200*5)		186000
		loss on sale of machine				45,000
		Machine					252,000
	31-Dec	Cash				84,000
		Accumulated dep				186000
		Gain on sale of machine					18,000
		Machine					252,000
	31-Dec	Cash				31,500
		Accumulated dep				186000
		loss on disposal				34,500
		Machine					252,000

	Cost of machine
	purchase price				240,000
	Ready to use				10,000
	cost of operating platform				2,000
	Total cost of machine				252,000
	Depreciation expense = (252,000-28,800/6
			37200