Question

onslow company purchased a used machine for $192,000 cash on january 2. on january 3, onslow paid $6,000 to wire electricity to the machine. onslow paid an additional $1,200 on january 4 to secure the machine for operation. the machine will be used for six years and have a $23,040 salvage value. straight - line depreciation is used. on december 31, at the end of its fifth year in operations, it is disposed of. problem 10 - 6a (algo) part 3 3. prepare journal entries to record the machines disposal under each separate situation: (a) it is sold for $24,000 cash and (b) it is sold for $96,000 cash. view transaction list journal entry worksheet 1 2 record the sale of the used machine for $24,000 cash.

Explanation:

Step1: Calculate the total cost of the machine

The total cost is the purchase price plus the cost to wire electricity and the cost to secure the machine for operation. So, $192000 + 6000+1200=\$199200$.

Step2: Calculate the annual depreciation

Using the straight - line depreciation formula $Depreciation=\frac{Cost - Salvage\ value}{Useful\ life}$. Here, $Cost = 199200$, $Salvage\ value = 23040$, and $Useful\ life=6$ years. So, $Depreciation=\frac{199200 - 23040}{6}=\frac{176160}{6}=\$29360$ per year.

Step3: Calculate the accumulated depreciation at the end of the fifth year

$Accumulated\ depreciation = Annual\ depreciation\times Number\ of\ years$. So, $Accumulated\ depreciation=29360\times5=\$146800$.

Step4: Calculate the book value at the end of the fifth year

$Book\ value=Cost - Accumulated\ depreciation$. So, $Book\ value = 199200-146800=\$52400$.

Situation (a)

Step5: Record the journal entry when sold for $24000

The loss on disposal is $Book\ value - Sale\ price$. So, $Loss = 52400 - 24000=\$28400$.
The journal entry is:
Debit: Cash $24000
Debit: Accumulated Depreciation - Machine $146800
Debit: Loss on Disposal of Machine $28400
Credit: Machine $199200

Situation (b)

Step6: Record the journal entry when sold for $96000

The gain on disposal is $Sale\ price - Book\ value$. So, $Gain=96000 - 52400=\$43600$.
The journal entry is:
Debit: Cash $96000
Debit: Accumulated Depreciation - Machine $146800
Credit: Machine $199200
Credit: Gain on Disposal of Machine $43600

Answer:

Situation (a):
Debit: Cash $24000
Debit: Accumulated Depreciation - Machine $146800
Debit: Loss on Disposal of Machine $28400
Credit: Machine $199200

Situation (b):
Debit: Cash $96000
Debit: Accumulated Depreciation - Machine $146800
Credit: Machine $199200
Credit: Gain on Disposal of Machine $43600