Question

Onslow Co. purchases a used machine for $192,000 cash on January 2 and readies it for use the next day at an $6,000 cost. On January 3, it is installed on a required operating platform costing $1,200, and it is further readied for operations. The company predicts the machine will be used for six years and have a $23,040 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.
1.Prepare journal entries to record the machine's purchase and the costs to ready and install it. Cash is paid for all costs incurred.
Entry #1. Record the purchase of a used machine for $192,000 cash.
Entry #2. Record the costs of $6,000 cash incurred on the used machine.
Entry #3: Record the cost of $1,200 for an operating platform.
2. Prepare journal entries to record depreciation of the machine at December 31.
Entry #1Its first year in operations : Record the year-end adjusting entry for the depreciation expense of the used machine.
Entry#2 The year of its disposal : Record the year-end adjusting entry for the depreciation expense of the used machine.
3. Prepare journal entries to record the machine's disposal under each of the following separate assumptions:
Entry #1: Record the sale of the used machine for $23,000 cash.
Entry #2: Record the sale of the used machine for $92,000 cash.
Entry #3: Record the destruction of the used machine in a fire with $33,500 cash insurance settlement.

Answer 1

Answer:

Onslow Co.

1. Journal Entries:

Entry #1. Record the purchase of a used machine for $192,000 cash.

Jan 2:

Debit Plant $192,000

Credit Cash Account $192,000

To record the purchase of the used machine.

Entry #2. Record the costs of $6,000 cash incurred on the used machine.

Debit Plant $6,000

Credit Cash Account $6,000

To record the cost for readying it for use.

Entry #3: Record the cost of $1,200 for an operating platform.

Debit Plant Operating Platform $1,200

Credit Cash Account $1,200

2. Journal Entries for Depreciation:

Entry #1  Its first year in operations : Record the year-end adjusting entry for the depreciation expense of the used machine.

December 31, Year 1:

Debit Depreciation Expense $29,160

Credit Accumulated Depreciation $29,160

To record depreciation expense for the year.

Entry#2 The year of its disposal : Record the year-end adjusting entry for the depreciation expense of the used machine.

Year 5 December 31:

Debit Depreciation Expense $29,160

Credit Accumulated Depreciation $29,160

To record the depreciation expense for the year.

3. Journals Entries;

Entry #1: Record the sale of the used machine for $23,000 cash.

Debit Cash Account $23,000

Credit Plant Disposal $23,000

To record the cash receipt from the sale.

Debit Plant Disposal $198,000

Credit Plant $198,000

To record the transfer of machine sold.

Debit Accumulated Depreciation $145,800

Credit Plant Disposal $145,800

To record the transfer of balance to Sale of Machine.

Entry #2: Record the sale of the used machine for $92,000 cash.

Debit Cash Account $92,000

Credit Plant Disposal $92,000

To record the cash receipt from the sale.

Entry #3: Record the destruction of the used machine in a fire with $33,500 cash insurance settlement.

Debit Cash Account $33,500

Credit Plant Disposal $33,500

To record the cash receipt from insurance.

Explanation:

a) Data and Calculations:

Cost of machine =      $192,000

Readying cost =               6,000

Total =                        $198,000

Useful life = 6 years

Salvage value =          $23,040

Depreciable amount $174,960

Depreciation per year = $29,160 ($174,960/6)

Accumulated Depreciation after 5 years = $145,800 ($29,160 x 5)

Book value after 5 years = $52,200

Method of Depreciation = Straight-line