On January 1, Walker purchases a used machine for $150,000 and readies it for us
ID: 2548455 • Letter: O
Question
On January 1, Walker purchases a used machine for $150,000 and readies it for use the next day at a cost Problem 8-6B of $3,510. On January 4, it is mounted on a required operating platform costing $4,600, and it is further Disposal of plant assets readied for operations. Management estimates the machine will be used for seven years and have an c1 P1 P2 $18,110 salvage value. Depreciation is to be charged on a straight-line basis. On December 31, at the end of its sixth 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. operations and (b) the year of its disposal. tions: (a) it is sold for $28.000 cash: (b) it is sold for $52.000 cash; and (c) it is destroyed in a fire and 2. Prepare journal entries to record depreciation of the machine at December 31 of (a) its first year in Check $20.000 (2b) Depr Exp. 3. Prepare journal entries to record the machine's disposal under each of the following separate assump- (3c) Dr Loss from Fire, $13,110 the insurance company pays $25.000 cash to settle the loss claim.Explanation / Answer
Answer
Machine cost
150000
Additional cost
3510
Additional cost
4600
Total cost to be capitalized
$158110
(-) Salvage value
18110
Depreciable base
$140000
Useful Life [in years]
7
Straight Line depreciation Annual
$20000
Journal Entry on Purchase and installation
General Journal
Debit
Credit
Machine
$158,110
Cash
$158,110
(asset purchased recorded)
Journal Entries for depreciation in first year and end of sixth year
Date
General Journal
Debit
Credit
31 Dec [Year 1]
Depreciation expense
$20000
Accumulated Depreciation
$20000
31 Dec [Year 6]
Depreciation expense
$20000
Accumulated Depreciation
$20000
Working
Case (a)
Case (b)
Case (c )
Machine original cost
158110
158110
158110
(-) Six year Depreciation
120000
120000
120000
Book Value at the time of sale/disposal
$38110
$38110
$38110
Sold for/Disposed at
28000
52000
25000
Gain/(Loss) on sale/disposal
$(10110)
$13890
$(13110)
Journal Entries
General Journal
Debit ($)
Credit ($)
Case (a)
Cash
28000
Accumulated Depreciation
120000
Loss on sale/disposal
10110
Machine
158110
Case (b)
Cash
52000
Accumulated Depreciation
120000
Machine
158110
Gain on Sale/ Disposal
13890
Case (c )
Cash
25000
Accumulated Depreciation
120000
Loss from Fire
13110
Machine
158110
Machine cost
150000
Additional cost
3510
Additional cost
4600
Total cost to be capitalized
$158110
(-) Salvage value
18110
Depreciable base
$140000
Useful Life [in years]
7
Straight Line depreciation Annual
$20000