Question

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Required information Problem 10-6A Disposal of plant assets LO C1, P1, P2 (The following information applies to the questions displayed below.) Onslow Co. purchased a used machine for $144,000 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 $17,280 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of. Problem 10-6A Part 1 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.

Answer 1

Solution:

Requirement 1:

Date	Account Titles and Explanation	Debit	Credit
Jan. 2	Machine	$        144,000
	Cash		$     144,000
	(Being machine purchased)
Jan. 3	Machine	$            8,000
	Cash		$          8,000
	(Being machine capital cost recorded)
Jan. 3	Machine	$            1,600
	Cash		$          1,600
	(Being machine capital cost recorded)

Requirement 2:

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	Depreciation Expense	$    22,720
	Accumulated Depreciation-Machine		$ 22,720
	(Being depreciation expense recorded)
Dec. 31	Depreciation Expense	$    22,720
	Accumulated Depreciation-Machine		$ 22,720
	(Being depreciation expense recorded)

Requirement 3:

Date	Account Titles and Explanation	Debit	Credit
1	Cash	$          24,500
	Accumulated Depreciation-Machine	$        113,600
	Loss on sale of machine ( balancing figure)	$          15,500
	Machine		$        153,600
	( Being machine sold)
2	Cash	$          98,000
	Accumulated Depreciation-Machine	$        113,600
	Gain on sale of machine ( balancing figure)		$          58,000
	Machine		$        153,600
	( Being machine sold)
3	Cash	$          35,000
	Accumulated Depreciation-Machine	$        113,600
	Loss from fire ( balancing figure)	$             5,000
	Machine		$        153,600
	( Being machine lost by fire)

Calculation of Accumulated Depreciation:

Year	Depreciation
1	$         22,720.00
2	$         22,720.00
3	$         22,720.00
4	$         22,720.00
5	$         22,720.00
Total	$      113,600.00

Notes:

1) Depreciation = machine cost - salvage value / useful life = (153,600-17,280) / 6 years = $ 22.720.