On January 1, Ammons purchases a used machine for $238,500 and readies it for use the next day at a
cost of $11,000. On January 4, it is mounted on a required operating platform costing $3,600, and it is
further readied for operations. Management estimates the machine will be used for six years and have a
$22,100 salvage value. Depreciation is to be charged on a straight-line basis. On December 31, at the
end of its fifth year of use, the machine 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 $20,500 cash; (b) it is sold for $71,750 cash; and (c) it is destroyed in a
fire and the insurance company pays $31,000 cash to settle the loss claim.
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