Question

Required information (The following information applies to the questions displayed below.) Onslow Co. purchases a used machine for $144,000 cash on January 2 and readies it for use the next day at a $8,000 cost. On January 3, it is installed on a required operating platform costing $1,600, and it is further readied for operations. The company predicts the machine will be used for six years and have a $17,280 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 $24,000 cash. 2. Record the sale of the used machine for $96,000 cash. 3. Record the insurance settlement received of $34,500 resulting from the total destruction of the machine in a fire.

Answer 1

Total Cost of Purchase
	$
Machine purchase cost	1,44,000
Other Cost	8,000
Platform Cost	1,600
Total Cost of Mahcine	1,53,600
Salvage Value	17,280
Depreciable Value	1,36,320
Useful life years	6
Depreciation per annum	22,720
At the end of 5th year book value of machine =	40,000
a) Machine sold for $24,000 cash	24,000
Loss on sale	16,000
Entry
Loss on sale Dr	16,000
Accumulated Depreciation Dr.	1,13,600
Cash A/c Dr	24,000
Machine A/c Cr		1,53,600
b) Machine sold for $96,000 cash	96,000
Profit on sale	56,000
Entry
Accumulated Depreciation Dr.	1,13,600
Cash A/c Dr	96,000
Machine A/c Cr		1,53,600
Profit on sale Cr		56,000
b) Insurance settlement of Machine for $34,500	34,500
Loss on settlement	5,500
Entry
Accumulated Depreciation Dr.	1,13,600
Insurance settlement Receivable /Cash Dr	34,500
Loss on Fire Dr	5,500
Machine A/c Cr		1,53,600