Question

Onslow Co. purchases a used machine for $178,000 cash on January 2 and readies it for use the next day at a $2,840 cost. On January 3, it is installed on a required operating platform costing $1,160, and it is further readied for operations. The company predicts the machine will be used for six years and have a $14,000 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.Required:Prepare journal entries to record the machine's disposal under each of the following separate assumptions: a. It is sold for $22,000 cash. b. It is sold for $88,000 cash. c. It is destroyed in a fire and the insurance company pays $32,500 cash to settle the loss claim.

Answer 1

All the requirements are solved below

Step-by-step explanation:

Purchase = $178,000

Ready to use cost = $2,480

Installation cost = $1,160

Salvage value = $14,000

Depreciation method = Straight line

Useful life = 6 years

Solution

Requirement A If sold for $22,000

Entry DEBIT CREDIT

Cash $22,000

Accumulated depreciation $140,000

Profit/loss on disposal $20,000

Machinery $182,000

Requirement B If sold for $88,000

Entry DEBIT CREDIT

Cash $82,000

Accumulated depreciation $140,000

Profit/loss on disposal $40,000

Machinery $182,000

Requirement C If destroyed in fire and insurance company paid $32,500

Entry DEBIT CREDIT

Cash $30,000

Accumulated depreciation $140,000

loss from fire $12,000

Machinery $182,000

Workings

Cost =$178,000 + $2,480 + $1,160

Cost = $182,000

Accumulated depreciation = (
`(182,000-14,000)/(6)x5`

Accumulated depreciation = 140,000