Problem 8-6A

Machine (used) purchased Jan 2 for $178,000 cash and readies it for use the next day at a $2840 cost. Jan 3 installed on required operating platform costing 1,160 and it is further readied for operations. The company predicts the machine will be used for six years and have a 14,000 salvage value. Depreciation is to be charged on a straight-line basis. On Dec 31 at the end of its fifth year in operations it is disposed of.

Questions:

1. Prepare journal entries to record the machines 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 Dec 31 of a) its first year in operations and b) the year of its disposal.

3. Prepare journal entries to record the machines disposal under each of the following separate assumptions: a) it is sold for 15,000 cash b) it is sold for 50,000 cash c) it is destroyed in a fire and the insurance company pays 30,000 cash to settle the loss claim.

Debit Credit

Jan. 2
Jan. 3
Jan. 3

a. First year

Dec. 31

b. Fifth year

Dec. 31

Accumulated depreciation at the date of disposal

Book value at the date of disposal

a. Sold for $15,000 cash Debit Credit

Dec. 31

b. Sold for $50,000 cash

Dec. 31

c. Destroyed in fire and collected $30,000 cash from insurance co.

Dec. 31