Discussion:
Saturn Co purchases a used machine for $167,000 cash on January 2 and readies it for use the next day at an $3,420 cost. On January 3, it is installed on a required operating platform costing $1,080, and it is further readied for operations. The company predicts the machine will be used for six years and have a $14,600 salvage value. Depreciation to be charged on a straight - line basis. On December 31, at the end of the fifth year in operations, it is disposed of.
1). Prepare journal entires to record the machine's purchase and the costs to ready and install it. Cash is paid for all costs incurred.
2). Prepare journal entires to record depreciation of the machine at December 31 of
(a) it first year in operations and
(b) the year of its disposal.
3). Prepare journal entires to record the machine's disposal under each of the following separate assumptions:
(a) it is sold for $13,500 cash;
(b) it is sold for $45,000 cash; and
(c) it is destroyed in a fire and the insurance company pays $24,000 cash to settle the loss claim.