P10-3A On January 1, 2008, Pele Company purchased the following two machines for

Question

P10-3A

On January 1, 2008, Pele Company purchased the following two machines for use in its production process.
Machine A The cash price of this machine was $38,000. Related expenditures included: sales tax $1,700, shipping costs $150, insurance during shipping $80, installation and testing costs $70, and $100 of oil and lubricants to be used with the machinery during its first year of operations. Pele estimates that the useful life of the machine is 5 years with a $5,000 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used.
Machine B The recorded cost of this machine was $160,000. Pele estimates that the useful life of the machine is 4 years with a $10,000 salvage value remaining at the end of that time period.






Correct.

Prepare the following for Machine A.
1. The journal entry to record its purchase on January 1, 2008.
2. The journal entry to record annual depreciation at December 31, 2008.
Account / Description Debit Credit
1. Machinery
$ 40000

Cash
$ 40000

2. Depreciation expense
$ 7000

Accumulated depreciation
$ 7000





This part is not coming out


Incorrect.





Calculate the amount of depreciation expense that should record for machine B each year of its useful life under the following assumptions. (Round depreciation cost per unit to 2 decimal places. Round final answers to 0 decimal places, e.g. 125.)

Pele uses the straight-line method of depreciation.
Pele uses the declining-balance method. The rate used is twice the straight-line rate.
Pele uses the units-of-activity method and estimates that the useful life of the machine is 125,000 units. Actual usage is as follows: 2008, 45,000 units; 2009, 35,000 units; 2010, 25,000 units; 2011, 20,000 units.


Year 1
Year 2
Year 3
Year 4

1.
Straight-line
$
$
$
$

2.
Declining-balance
$
$
$
$

3.
Units-of-activity
$
$
$
$




Year 4 1. 4000

2. 24000


3 .2400













Incorrect.





Which method used to calculate depreciation on machine B reports the highest amount of depreciation expense in year 1 (2008)? declining-balance method This is correct

The highest amount in year 4 (2011)? units-of-activity methodall methods are the samedeclining-balance methodstraight-line method

The highest total amount over the 4-year period? declining-balance methodunits-of-activity methodall methods are the samestraight-line method

Explanation / Answer

I assume that you want answer for Machine B. Cost price $160,000, Salvage value $10000, Life n = 4 Yrs 1. SLNmethod : Annual Dep is same for all 4 yrs Annual Dep = (Cost - Salvage Value)/Usefu life = (160,000-10,000)/4 = $37,500 2. When using the double-declining-balance method, the salvage value is not considered in determining the annual depreciation, but the book value of the asset being depreciated is never brought below its salvage value, regardless of the method used. The process continues until the salvage value or the end of the asset's useful life, is reached. In the last year of depreciation a subtraction might be needed in order to prevent book value from falling below estimated Scrap Value. Under this method the book value is multiplied by a fixed rate. annual depreciation = depreciation rate * book value at beginning of year The most common rate used is double the straight-line rate. For this reason, this technique is referred to as the double-declining-balance method. Here $160,000 original cost, $10,000 salvage value, and 4 years useful life. First, calculate straight-line depreciation rate. Since the asset has 4 years useful life, the straight-line depreciation rate equals (100% / 4) =25% per year. With double-declining-balance method, as the name suggests, double that rate, or 50% depreciation rate is used. So Y1 Dep = 150,000*50% = $75000, Book BValye = 150,000-75000 = 75000 Y2 Dep = BV * Dep Rate = 75000*50% = $37,500 & BV = 75000 - 37500 = 37500 Y3 Dep = 37500*50% = $18750 & BV = 37500 - 18750 = 18750 Y4 Dep = BV - salvage value = 18750 - 10,000 = $8750 3. Unit of Dep method = (Cost of eqpt - Salvage value)*Actual annual production/Total Prodn over life of eqpt = (160,000-10000)*Annual Prod/125,000 So Y1 = 150,000*45000/125000 = $54,000 Y2 = 150000*35000/125000 = $42,000 Y3 = 150000*25000/125000 = $30,000 Y4 = 150000*20000/125000 = $24,000

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