Question

Onslow Co. purchases a used machine for $192,000 cash on January 2 and readies it for use the next day at an $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 $23,040 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.

Answer 1

Answer:

Onslow Co.

Journal Entries;

Jan. 2:

Debit Equipment $192,000

Credit Cash Account $192,000

To record the purchase of used machine by cash.

Jan. 3:

Debit Equipment $9,600

Credit Cash Account $9,600

To record the repair and installation costs.

December 31:

Debit Depreciation Expense $29,760

Credit Accumulated Depreciation $29,760

To record depreciation expense for the period.

Debit Sale of Equipment $201,600

Credit Equipment $201,600

To transfer the sale of equipment to Equipment.

On Disposal:

Debit Accumulated Depreciation $148,800

Credit Sale of Equipment $148,800

To record the disposal

Explanation:

Jan. 2 purchase of a used machine $192,000

Jan. 3 repair expenses                            8,000

Jan. 3 installation                                     1,600

Total cost of acquisition                   $201,600

Salvage value                                       23,040

Depreciable amount                          178,560

Depreciation per year                       $29,760 ($178,560 / 6)

Accumulated Depreciation for 5 years = $148,800 ($29,760 x 5)