Question

Onslow Co. purchased a used machine for $240,000 cash on January 2. On January 3, Onslow paid $8,000 to wire electricity to the machine and an additional $1,600 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.

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.

Onslow Co. purchased a used machine for $240,000 cash on January 2. On January 3, Onslow paid $8,000 to wire electricity to the machine and an additional $1,600 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.

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

Record the purchase of a used machine for $240,000 cash.

Record the first year year-end adjusting entry for the depreciation expense of the used machine.

Record the sale of the used machine for $22,000 cash ,

Answer 1

1.

Cost of machine = $240,000+8,000+1,600 = $249,600

Date	General Journal	Debit	Credit
Jan.2	Machinery	$240,000
	Cash		$240,000
Jan.3	Machinery	$8,000
	Cash		$8,000
Jan.3	Machinery	$1,600
	Cash		$1,600
Dec.31	Depreciation expense ($249,600-28,800/6)	$36,800
	Accumulated depreciation		$36,800

2.

Date	General Journal	Debit	Credit
Jan.2, Year 1	Machinery	$240,000
	Cash		$240,000
Dec.31, Year 1	Depreciation expense	$36,800
	Accumulated depreciation		$36,800
Dec.31, Year 5	Cash	$22,000
	Accumulated depreciation (36,800*5)	184,000
	Loss on sale of machinery (249,600-22,000-184,000)	43,600
	Machinery		$249,600