At the beginning of the year, Plummer\'s Sports Center bought three used fitness
ID: 2341962 • Letter: A
Question
At the beginning of the year, Plummer's Sports Center bought three used fitness machines from Advantage, Inc. The machines immediately were overhauled, installed, and started operating. The machines were different; therefore, each had to be recorded separately in the accounts.
. Compute the cost of each machine.
2. Prepare the entry to record depreciation expense at the end of year 1, assuming the following. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
ESTIMATES
Machine A Machine B Machine C Amount paid for asset $ 36,500 $ 34,600 $ 8,600 Installation costs 600 1,400 2,000 Renovation costs prior to use 3,800 2,700 3,400. Compute the cost of each machine.
2. Prepare the entry to record depreciation expense at the end of year 1, assuming the following. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
ESTIMATES
Machine Life Residual Value Depreciation Method A 10 years $1,900 Straight-line B 71,000 hours 3,200 Units-of-production C 5 years 3,100 Double-declining-balance Machine A Machine B S Machine C Total Cost $ 40,900 $ 38,700 $ 14,000Explanation / Answer
Straight line Method-Machine A
A
Cost
$ 40,900.00
B
Residual Value
$ 1,900.00
C=A - B
Depreciable base
$ 39,000.00
D
Life [in years]
10
E=C/D
Annual SLM depreciation
$ 3,900.00
Units of Usage Method-Machine B
A
Cost
$ 38,700.00
B
Residual Value
$ 3,200.00
C=A - B
Depreciable base
$ 35,500.00
D
Usage in units
71000
E
Depreciation per working hour
0.50
Year
Book Value
Usage
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 38,700.00
6700
$ 3,350.00
$ 35,350.00
$ 3,350.00
It is assumed that in first year machine has worked for 6700 hours
Double declining Method-Machine C
A
Cost
$ 14,000.00
B
Residual Value
$ 3,100.00
C=A - B
Depreciable base
$ 10,900.00
D
Life [in years]
5
E=C/D
Annual SLM depreciation
$ 2,180.00
F=E/C
SLM Rate
20.00%
G=F x 2
DDB Rate
40.00%
Year
Beginning Book Value
Depreciation rate
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 14,000.00
40.00%
$ 5,600.00
$ 8,400.00
$ 5,600.00
Journal entry for depreciation
General Journal
Debit
Credit
Depreciation Expense
$ 12,850.00
Accumulated Depreciation , Machine A
$ 3,900.00
Accumulated Depreciation , Machine B
$ 3,350.00
Accumulated Depreciation , Machine C
$ 5,600.00
Number of years machine B worked was not mentioned in the question so it is assumed that machine has worked for 6700 hours. In case the assumption is incorrect . Take depreciation per hour and multiply by number of units worked and you will get the amount of depreciation for machine B.
In case of any query, please leave a comment for any further explanation with this question.
Straight line Method-Machine A
A
Cost
$ 40,900.00
B
Residual Value
$ 1,900.00
C=A - B
Depreciable base
$ 39,000.00
D
Life [in years]
10
E=C/D
Annual SLM depreciation
$ 3,900.00
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