Question

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

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 $21,500 cash.
2. Record the sale of the used machine for $86,000 cash.
3. Record the insurance settlement received of $32,000 resulting from the total destruction of the machine in a fire.

Answer 1

Ans- Journal Entries

Date	Account Titles and Explanation	Debit ($)	Credit ($)
	(a) It is sold for $21,500 cash.
	Cash A/c Dr.	21,500
	Accumulated Depreciation -Machinery ($22,720*5)	113,600
	Loss on sale of machinery	18,500
	Machinery		153,600
	(To record the sale of machine)
	(b) It is sold for $86,000 cash.
	Cash	86,000
	Accumulated Depreciation-Machinery	113,600
	Machinery		153,600
	Gain on sale of machinery		46,000
	(To record the sale of machine)
	(c) It is destroyed in a fire
	Cash	32,000
	Accumulated Depreciation -Machinery	113,600
	Loss from fire	8,000
	Machinery		153,600
	(To record the sale of machine)

Working Note:-

Depreciation= (Cost -Salvage value)/ Estimated Life

Cost of Machinery=$144,000+$8,000+$1,600=$153,600

Depreciation= ($153,600-$17,280)/ 6 Years

=$136,320/ 6 Years

=$22,720

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