At the beginning of the year, Kevin Laspace bought three used fitness machines f
ID: 2341808 • Letter: A
Question
At the beginning of the year, Kevin Laspace bought three used fitness machines from Getum Barleygal, Inc. The machines immediately were overhauled, installed, and started operating. The machines were different; therefore, each had to be recorded separately in the accounts.
By the end of the first year, each machine had been operating 6,700 hours.
1) Compute the cost of each machine.
Machine A Total Cost:
Machine B Total Cost:
Machine C Total Cost:
2) Prepare the entry to record depreciation expense at the end of year 1, assuming the following.
Machine A Machine B Machine C Amount paid for asset $ 13,500 $ 37,400 $ 14,400 Installation costs 2,300 1,100 1,500 Renovation costs prior to use 4,400 2,400 1,600 ESTIMATES Life Machine Depreciation Method 6 years 74,000 hours years $1,000 Straight-line 3,900 Units-of-production 2,800 Double-dclining-balanceExplanation / Answer
Machine A
Machine B
Machine C
Amount paid for asset
$ 13,500.00
$ 37,400.00
$ 14,400.00
Installation cost
$ 2,300.00
$ 1,100.00
$ 1,500.00
Renovation cost
$ 4,400.00
$ 2,400.00
$ 1,600.00
Total Cost of machine
$ 20,200.00
$ 40,900.00
$ 17,500.00
Machine cost includes installation and renovation cost.
Requirement 1
Answer
Cost of machines
Machine A
$ 20,200.00
Machine B
$ 40,900.00
Machine C
$ 17,500.00
Straight line Method-Machine A
A
Cost
$ 20,200.00
B
Residual Value
$ 1,000.00
C=A - B
Depreciable base
$ 19,200.00
D
Life [in years]
6
E=C/D
Annual SLM depreciation
$ 3,200.00
Units of Usage Method –Machine B
A
Cost
$ 40,900.00
B
Residual Value
$ 3,900.00
C=A - B
Depreciable base
$ 37,000.00
D
Usage in units(In Mies)
74000
E
Depreciation per working hour
0.50
Year
Book Value
Usage
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 40,900.00
6700
$ 3,350.00
$ 37,550.00
$ 3,350.00
Double declining Method-Machine C
A
Cost
$ 17,500.00
B
Residual Value
$ 2,800.00
C=A - B
Depreciable base
$ 14,700.00
D
Life [in years]
7
E=C/D
Annual SLM depreciation
$ 2,100.00
F=E/C
SLM Rate
14.29%
G=F x 2
DDB Rate
28.57%
Year
Beginning Book Value
Depreciation rate
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 17,500.00
28.57%
$ 5,000.00
$ 12,500.00
$ 5,000.00
Answer
Journal entry for first year’s Depreciation expense
General Journal
Debit
Credit
Depreciation Expense
$ 11,550.00
Accumulated Depreciation , Machine A
$ 3,200.00
Accumulated Depreciation , Machine B
$ 3,350.00
Accumulated Depreciation , Machine C
$ 5,000.00
Machine A
Machine B
Machine C
Amount paid for asset
$ 13,500.00
$ 37,400.00
$ 14,400.00
Installation cost
$ 2,300.00
$ 1,100.00
$ 1,500.00
Renovation cost
$ 4,400.00
$ 2,400.00
$ 1,600.00
Total Cost of machine
$ 20,200.00
$ 40,900.00
$ 17,500.00
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