Chapter 10, Problem 6APSA

To determine

To prepare:

Journal entries.

Explanation of Solution

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jan 2	Machinery		1,78,000
	Cost for use			2,840
	Installation cost			1,160
	Cash			182,000
	(Being cost incurred to purchase machinery and its installation)

     Table (1)

• Purchase of machinery increases the value of assets hence debit machinery account.
• As the cost of use is an expense being incurred by the companies in order to ready the equipment for use hence debit all expenses and losses.
• Installation cost is an expense which decreases the asset hence debits all expenses and losses.
• Cash is an asset which decreases while the machinery is being purchased

To determine

To prepare:

Journal entries in its first year in operations.

Explanation of Solution

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jan 2	Accumulated Depreciation Expense		28,000
	Machinery			28,000
	(Being depreciation charged on machinery)

     Table (2)

• Accumulated depreciation is an expense which decreases the asset of the company hence debits all expenses and losses.
• Machinery is an asset whose value is decreased on account of such depreciation being applicable hence credit machinery account.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jan 2	Accumulated Depreciation Expense		28,000
	Machinery			28,000
	(Being depreciation charged on machinery)

     Table (3)

• Accumulated depreciation is an expense which decreases the asset of the company hence debits all expenses and losses.
• Machinery is an asset whose value is decreased on account of such depreciation being applicable hence credit machinery account.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jan 2	Cash		15,000
	Accumulated Depreciation		28,000
	Loss on asset disposal		139,000
	Machinery			182,000
	(Being machinery sold for cash)

     Table (4)

• Cash is an asset which is increased on account of cash being received against the sale of machinery.
• Accumulated depreciation is an expense against the asset as it decreases the value of asset hence debit accumulated depreciation account.
• Loss on asset disposal is an expense which decreases the value of asset hence debits all expenses and losses.
• Machinery as an asset which is decreased on account of being sold hence credit machinery account.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jan 2	Cash		50,000
	Accumulated Depreciation		28,000
	Loss on asset disposal		104,000
	Machinery			182,000
	(Being machinery sold for cash)

     Table (5)

• Cash is an asset which is increased on account of amount received on sale of machinery.
• Accumulated depreciation decreases the value of asset hence debit all expenses and losses.
• Loss on asset disposal decreases the values of asset hence debit all expenses and losses.
• Machinery is an asset which is decreased on account of sale of the machinery hence credit machinery account.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jan 2	Cash		30,000
	Accumulated Depreciation		140,000
	Loss from fire		12,000
	Machinery			182,000
	(Being machinery sold for cash)

     Table (6)

• Cash is asset which is increased on account insurance amount received from the insurance company.
• Accumulated depreciation is an expense which decreases the asset hence debit accumulated depreciation account.
• Loss from fire is an expense which decreases the value of asset hence debits all expenses and losses.
• Machinery is an asset which is decreased from such an accident of fire hence credit machinery account.