Recording Asset Acquisition, Depreciation, and Disposal

On January 2, 2013, Hutton Company acquired a machine for $85,000. In addition to the purchase price, Hutton spent $2,000 for shipping and installation, and $2,500 to calibrate the machine prior to use. The company estimates that the machine has a useful life of five years and a residual value of $7,000.

Required

a. Prepare journal entries to record the acquisition costs.

	Description	Debit	Credit
1/2/2013	Answer MachineryAccumulated depreciationCashGain on sale of machineryLoss on sale of machineryDepreciation expense	Answer	Answer
	Answer Gain on sale of machineryAccumulated depreciationMachineryLoss on sale of machineryCashDepreciation expense	Answer	Answer

b. Calculate the annual depreciation expense using straight-line depreciation and prepare a journal entry to record depreciation expense for 2013.

	Description	Debit	Credit
12/31/2013	Answer Loss on sale of machineryGain on sale of machineryMachineryDepreciation expenseCashAccumulated depreciation	Answer	Answer
	Answer Accumulated depreciationGain on sale of machineryCashDepreciation expenseMachineryLoss on sale of machinery	Answer	Answer

c. On December 31, 2016, Hutton sold the machine to another company for $12,000. Prepare the necessary journal entry to record the sale.

Description	Debit	Credit
Cash	Answer	Answer
Accumulated depreciation	Answer	Answer
Answer Loss on sale of machineryMachineryGain on sale of machineryDepreciation expenseCashAccumulated depreciation	Answer	Answer
Answer Loss on sale of machineryAccumulated depreciationCashMachineryGain on sale of machineryDepreciation expense	Answer	Answer