Prepare journal entries (2) The next activity occurred on February 1, 20x7. A mo
ID: 2375792 • Letter: P
Question
Prepare journal entries
(2) The next activity occurred on February 1, 20x7. A molding machine was purchased for $247,000. The machine cost an additional $10,000 to have it shipped to the plant. Once on location, the company had $5,000 in installation and operating costs before the machine was ready to begin full operation. Two employees went to a one-day training school to learn how to operate the new machine at a cost of $1,400. The molding machine has an 8-year useful life and a salvage value of $22,000. The company paid cash for the shipping, installation, and training charges plus $25,000 for the machine. The balance due on the machine was set up with a note payable.
(3) On March 1, 20x7, a cutting machine was traded in for a similar new computerized cutting machine. The old machine, which originally cost $130,000, had been at the company since January 1, 20x1 and had 1 year and 10 months of useful life remaining. The salvage value of the old machine was estimated at $10,000, but the company received $36,000 as a trade in value. The new machine cost $280,000, which included delivery and installation. The new machine has an expected life of 10 years at which time it could probably be sold for $40,000. The company made a down payment of $20,000 and signed a five year note payable for the balance due.
Explanation / Answer
2. Book value of Machine = cost + shipping+Instalaation+Training
= 247000+10000+5000+1400
= $263,400
AMount paid in Cash = 10000+5000+1400 + 25000 = 41400
So Note payable = Book value - AMt paid in cash
= 263400-41400 = 222000
So Journal entry will be
1Feb 20x7 Molding machine Dr 263400
Cash Cr 41400
Note Paybale Cr 222,000
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(3) New machne cost 280,000
DOwn paymnet 20,000
SO Note payable 260,000 for 5 Yrs
Old machine cost 130,000
Life = 1Janx1 to Mar1 20x7 + 1Y 10M = 6Y 2M+1Y 10M = 8Y
Dep using sln = (Cost-salvage)/life = (130000-10000)/8
is Dep rate = 15000
So Dep in 6Y2M = 6*15000 + 15000*(2/12) = 92500
SO Book value on 1Marx7 = 130000-92500 = 37500
Trade in value 36000
SO Loss in Trade in 1500
SO Journal entry will be
1Mat 20x7 New Machne Dr 280,000
Accum Dep Old Machine Dr 92500
Loss in Trade in Dr 1500
Trade In value Dr 36000
Old Machine Cr 130,000
Cash Cr 20000
Note Paybae Cr 260,000