Onslow Company purchased a used machine for $240,000 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 $28,800 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of. Prepare journal entries to record the machine’s disposal under each separate situation:
(a) it is sold for $24,500 cash and
(b) it is sold for $98,000 cash.

To prepare journal entries for the disposal of the machine at the end of the fifth year, we need to follow these steps:

1. **Calculate the total cost of the machine, including additional costs.**
2. **Determine the annual depreciation expense using the straight-line method.**
3. **Calculate the accumulated depreciation at the end of the fifth year.**
4. **Compute the book value of the machine at the end of the fifth year.**
5. **Prepare the journal entries based on the sale price in each scenario.**

### Step 1: Calculate the Total Cost of the Machine

The total cost of the machine includes the purchase price plus additional expenditures to make it operational.

\[
\text{Total Cost} = 240,000 + 6,000 + 1,200 = 247,200
\]

### Step 2: Calculate Annual Depreciation

Using the straight-line depreciation method:

\[
\text{Annual Depreciation} = \frac{\text{Total Cost} - \text{Salvage Value}}{\text{Useful Life}} = \frac{247,200 - 28,800}{6} = 36,400
\]

### Step 3: Calculate Accumulated Depreciation at the End of the Fifth Year

Since the machine has been in use for five years, the accumulated depreciation will be:

\[
\text{Accumulated Depreciation} = 36,400 \times 5 = 182,000
\]

### Step 4: Calculate the Book Value at the End of the Fifth Year

The book value is calculated as the total cost minus accumulated depreciation:

\[
\text{Book Value} = 247,200 - 182,000 = 65,200
\]

### Step 5: Journal Entries for Each Scenario

#### Scenario (a): The Machine is Sold for $24,500 Cash

1. **Record the cash received**: Debit the cash account for $24,500.
2. **Remove the accumulated depreciation**: Debit the accumulated depreciation account for $182,000.
3. **Remove the machine’s cost**: Credit the machinery account for $247,200.
4. **Record the loss on sale**: The difference between the book value ($65,200) and the cash received ($24,500) is a loss of $40,700. Debit the loss on sale account for this amount.

The journal entry is:

| Account                       | Debit       | Credit     |
|-------------------------------|-------------|------------|
| Cash                          | 24,500      |            |
| Accumulated Depreciation      | 182,000     |            |
| Loss on Sale of Machinery     | 40,700      |            |
| Machinery                     |             | 247,200    |

#### Scenario (b): The Machine is Sold for $98,000 Cash

1. **Record the cash received**: Debit the cash account for $98,000.
2. **Remove the accumulated depreciation**: Debit the accumulated depreciation account for $182,000.
3. **Remove the machine’s cost**: Credit the machinery account for $247,200.
4. **Record the gain on sale**: The difference between the cash received ($98,000) and the book value ($65,200) is a gain of $32,800. Credit the gain on sale account for this amount.

The journal entry is:

| Account                       | Debit       | Credit     |
|-------------------------------|-------------|------------|
| Cash                          | 98,000      |            |
| Accumulated Depreciation      | 182,000     |            |
| Machinery                     |             | 247,200    |
| Gain on Sale of Machinery     |             | 32,800     |

Would you like further details on the depreciation calculations or explanations of the journal entries? 

Here are some related questions you might explore:

1. How would the entries change if the salvage value differed?
2. What would the entries look like if the machine were scrapped instead of sold?
3. How would a change in the useful life affect depreciation and disposal values?
4. How does accumulated depreciation impact book value?
5. How would depreciation vary if a different method were used?

**Tip:** For straight-line depreciation, always confirm the useful life and salvage value to ensure accurate calculations.

Onslow Company purchased a used machine for $240,000 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 $28,800 salvage value. Straight-line depreciation is used. On December 31, at the end of its fifth year in operations, it is disposed of. Prepare journal entries to record the machine’s disposal under each separate situation: (a) it is sold for $24,500 cash and (b) it is sold for $98,000 cash.

Learn how to prepare journal entries for the disposal of a machine using straight-line depreciation. This problem involves calculating the total cost, annual depreciation, accumulated depreciation, and book value of the machine. Scenarios include the machine being sold for $24,500 and $98,000 cash. Suitable for college-level accounting students.

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