Onslow Co. purchased a used machine for $178,000 cash on January 2. On January 3, Onslow paid $2,840 to wire electricity to the machine and an additional $1,160 to secure it in place. The machine will be used for six years and have a $14,000 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of. Required 1. Prepare journal entries to record the machine’s purchase and the costs to ready it for use. Cash is paid for all costs incurred. 2. Prepare journal entries to record depreciation of the machine at December 31 of (a) its first year of operations and (b) the year of its disposal. 3. Prepare journal entries to record the machine’s disposal under each separate situation: (a) it is sold for $15,000 cash; (b) it is sold for $50,000 cash; and (c) it is destroyed in a fire and the insurance company pays $30,000 cash to settle the loss claim.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Onslow Co. purchased a used machine for $178,000 cash on January 2. On January 3, Onslow paid $2,840
to wire electricity to the machine and an additional $1,160 to secure it in place. The machine will be used
for six years and have a $14,000 salvage value. Straight-line
end of its fifth year in operations, it is disposed of.
Required
1. Prepare
for all costs incurred.
2. Prepare journal entries to record depreciation of the machine at December 31 of (a) its first year of
operations and (b) the year of its disposal.
3. Prepare journal entries to record the machine’s disposal under each separate situation: (a) it is sold for
$15,000 cash; (b) it is sold for $50,000 cash; and (c) it is destroyed in a fire and the insurance company
pays $30,000 cash to settle the loss claim.
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