Disposal of plant assets LO2 LO4 LO6
Onslow Co. purchases a used machine for $178,000 cash on January 2 and readies it for use the next day
at a $2,840 cost. On January 3, it is installed on a required operating platform costing $1,160, and it is further
readied for operations. The company predicts the machine will be used for six years and have a
$14,000 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.
Required
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.
2. Prepare journal entries to record depreciation of the machine at December 31 of (a) its first year in
operations and (b) the year of its disposal.
3. Prepare journal entries to record the machine’s disposal under each of the following separate assumptions:
(a) it is sold for $15,000 cash; (b) it is sold for $50,000 cash; and (c) it is destroyed in a fire
and the insurance company pays $30,000 cash to settle the loss claim.
Check (2b) Depr. Exp., $28,000
(3c) Dr. Loss from Fire,
$12,000
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