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7 April, 22:42

Onslow Co. purchased a used machine for $144,000 cash on January 2. On January 3, Onslow paid $10,000 to wire electricity to the machine and an additional $2,000 to secure it in place. The machine will be used for six years and have a $17,280 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of:

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  1. 8 April, 02:42
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    The information is incomplete, but we can assume that the machine was sold at the fifth year for an X amount of money, so we should prepare the journal records. Since we are not given the sales amount, I will just use any number, like $50,000. You can adjust the calculation depending on the exact sales amount.

    Explanation:

    January 2, Year 1, purchase of machine:

    Dr Machinery 144,000

    Cr Cash 144,000

    January 3, Year 1, additional expenses needed to put machine into service (electric wiring):

    Dr Machinery 10,000

    Cr Cash 10,000

    January 3, Year 1, additional expenses needed to put machine into service (installation):

    Dr Machinery 2,000

    Cr Cash 2,000

    The machine's total cost = $144,000 + $10,000 + $2,000 = $156,000

    depreciation expense per year = ($156,000 - salvage value) / 6 years = ($156,000 - $17,280) / 6 = $23,120

    Accumulated depreciation during 5 years = $23,120 x 5 = $115,600, carrying value = $156,000 - $115,600 = $40,400

    If the machine is sold at $50,000, the journal entries should be:

    December 31, year 5, machine is sold:

    Dr Cash 50,000

    Dr Accumulated depreciation $115,600

    Cr Machinery 156,000

    Cr Gain on disposal 9,600

    Gain on disposal = cash received - carrying value = $50,000 - $40,400 = $9,600
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