Question

Onslow Co. purchased a used machine for $144,000 cash on January 2. On January 3, Onslow paid $10,000 to wire electricity to the machine and an additional $2,000 to secure it in place. The machine will be used for six years and have a $17,280 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.

Answer 1

Dr Fixed asset $156,000

Cr Cash $156,000

Being entries to record the cost of the machine

Step-by-step explanation:

The cost to wire electricity and secure the machine in place are part of the cost to make the machine available for use as such, these will be capitalized with the cost of purchase of the asset.

Capitalized cost of asset

= $144,000 + $10,000 + $2,000

= $156,000