Question

Onslow Co. purchased a used machine for $192,000 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 $23,040 salvage value. Straight-line depreciation is used. 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 separate situation: (a) it is sold for $24,500 cash; (b) it is sold for $98,000 cash; and (c) it is destroyed in a fire and the insurance company pays $35,000 cash to settle the loss claim.

• Record the sale of the used machine for $24,500 cash.
• Record the sale of the used machine for $98,000 cash.
• Record the insurance settlement received of $35,000 resulting from the total destruction of the machine in a fire.

• No	Date	General Journal	Debit	Credit
  1	Dec 31	Cash	24,500
  		Loss on sale of machinery
  		Accumulated depreciation—Machinery
  		Machinery
  2	Dec 31	Cash	98,000
  		Accumulated depreciation—Machinery
  		Machinery
  		Gain on sale of machinery
  3	Dec 31	Cash	35,000
  		Accumulated depreciation—Machinery
  		Loss from fire
  		Machinery

  
  

Answer 1

Purchase price of Machinery Installation (Electricity wiring) Installation (Additional chrges) Cost of Machinery (A) Salvage Value (B) Life of Machine $ $ $ $ $ 1,92,000 8,000 1,600 2,01,600 23,040 6 years Depreciation (Straight Line) = (Cost of Machine - Salvage)/ Life of Machine ($201600 - $23040) / 6 $ 29,760 per year Accumulated Depreciation = (at the end of 5th year) = $29,760 x 5 $ 1,48,800 Credit Journal Entries in Various Cases: No. Date General Journal 1 Dec, 31 Cash Loss on Sale of Machinery (Bal fig.) Accumulated Dep - Machinery Machinery Debit $ 24,500 $ 28,300 $ 1,48,800 $ 2,01,600 Dec, 31 $ $ 98,000 1,48,800 Cash Accumulated Dep - Machinery Machinery Gain on sale of Machinery (Bal. fig) $ $ 2,01,600 45,200 Dec, 31 Cash Accumulated Dep - Machinery Loss from fire (Bal. fig) Machinery $ $ $ 35,000 1,48,800 17,800 $ 2,01,600 (Bal fig. = Balancing figure)

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