Question

Onslow Co. purchased a used machine for $240,000 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 $28,800 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of sed machine. 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.

Answer 1

Answer and Explanation:

The journal entries are shown below:

Cash $24,500  

Accumulated dep (36800 × 5) $184,000  

loss on sale of machine $41,100

         To Machine $249,600

(being the sale of the machine is recorded)

Cash $98,000

Accumulated dep (36800 × 5) $184,000    

         To Machine $249,600

         To gain on sale of machine $32,400

(being the sale of the machine is recorded)

Cash $35,000

Accumulated dep (36800 × 5) $184,000  

loss on sale of machine $30,600

         To Machine $249,600

(being the sale of the machine is recorded)  

Working note:

Accumulated depreciation

= ($240,000 + $8,000 + $1,600 - $28,800) ÷6 years

= $36,800