On January 1, 2014, Thao Company purchased the following two machines for use in
ID: 2453059 • Letter: O
Question
On January 1, 2014, Thao Company purchased the following two machines for use in its production process.
Prepare the following for Machine A. (Round answers to 0 decimal places, e.g. $2,125.)
2) The journal entry to record annual depreciation at December 31, 2014.
Then calculate the amount of depreciation expense that Thao should record for Machine B each year of its useful life under the following assumptions. (Round answers to 0 decimal places, e.g. $2,125. Round cost per unit to 2 decimal place, e.g. 1.25.)
1) Thao uses the straight-line method of depreciation.
2) Thao uses the declining-balance method. The rate used is twice the straight-line rate.
3) Thao uses the units-of-activity method and estimates that the useful life of the machine is 113,270 units. Actual usage is as follows: 2014, 42,100 units; 2015, 34,190 units; 2016, 22,590 units; 2017, 14,390 units.
Thanks!
Machine A: The cash price of this machine was $50,700. Related expenditures included: sales tax $3,100, shipping costs $200, insurance during shipping $110, installation and testing costs $80, and $150 of oil and lubricants to be used with the machinery during its first year of operations. Thao estimates that the useful life of the machine is 5 years with a $6,000 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 $96,000. Thao estimates that the useful life of the machine is 4 years with a $6,000 salvage value remaining at the end of that time period.Explanation / Answer
Prepare the following for Machine A.
Cost of Machine A = cash price of this machine - oil and lubricants to be used with the machinery during its first year of operations
Cost of Machine A = 50700-150
Cost of Machine A = 50550
Annual Depreciation = (Cost of Machine - salvage Value)/useful life
Annual Depreciation = (50550-6000)/5
Annual Depreciation =8910
1)
2)
Then calculate the amount of depreciation expense that Thao should record for Machine B each year of its useful life under the following assumptions. (Round answers to 0 decimal places, e.g. $2,125. Round cost per unit to 2 decimal place, e.g. 1.25.)
1) Thao uses the straight-line method of depreciation.
Annual Depreciation = (cost-salvage value)/useful life
Annual Depreciation = (96000-6000)/4
Annual Depreciation = 22500
2) Thao uses the declining-balance method. The rate used is twice the straight-line rate.
Depreciation rate = 1/useful life*2
Depreciation rate = 1/4*2
Depreciation rate = 50%
2014
Depreciation Expenses =Depreciation rate * (Cost -Accumulated Depreciation)
Depreciation Expenses = 50%*(96000-0)
Depreciation Expenses = 48000
Accumulated Depreciation at the end = Accumulated Depreciation at the beginning + Depreciation Expenses during the year
Accumulated Depreciation at the end = 0+48000
Accumulated Depreciation at the end = 48000
2015
Depreciation Expenses =Depreciation rate * (Cost -Accumulated Depreciation)
Depreciation Expenses = 50%*(96000-48000)
Depreciation Expenses = 24000
Accumulated Depreciation at the end = Accumulated Depreciation at the beginning + Depreciation Expenses during the year
Accumulated Depreciation at the end = 48000+24000
Accumulated Depreciation at the end = 72000
2016
Depreciation Expenses =Depreciation rate * (Cost -Accumulated Depreciation)
Depreciation Expenses = 50%*(96000-72000)
Depreciation Expenses = 12000
Accumulated Depreciation at the end = Accumulated Depreciation at the beginning + Depreciation Expenses during the year
Accumulated Depreciation at the end = 72000+12000
Accumulated Depreciation at the end = 84000
2017
Depreciation Expenses =Depreciation rate * (Cost -Accumulated Depreciation)
Depreciation Expenses = 50%*(96000-84000)
Depreciation Expenses = 6000
Accumulated Depreciation at the end = Accumulated Depreciation at the beginning + Depreciation Expenses during the year
Accumulated Depreciation at the end = 84000+6000
Accumulated Depreciation at the end = 90000
3) Thao uses the units-of-activity method and estimates that the useful life of the machine is 113,270 units. Actual usage is as follows: 2014, 42,100 units; 2015, 34,190 units; 2016, 22,590 units; 2017, 14,390 units.
Depreciation rate = (Cost-salvage value)/Estimated useful life of the machine of units
Depreciation rate = (96000-6000)/113270
Depreciation rate = 0.79
2014
Depreciation Expenses =Depreciation rate * Actual usage
Depreciation Expenses = 0.79*42100
Depreciation Expenses = 33259
2015
Depreciation Expenses =Depreciation rate * Actual usage
Depreciation Expenses = 0.79*34190
Depreciation Expenses = 27010
2016
Depreciation Expenses =Depreciation rate * Actual usage
Depreciation Expenses = 0.79*22590
Depreciation Expenses = 17846
2017
Depreciation Expenses =Depreciation rate * Actual usage
Depreciation Expenses = 0.79*14390
Depreciation Expenses = 11368
Answer
Date Account Title & Explaination Debit Credit January 1, 2014 Machine A 50550 Utility Expenses - Oil& Lubricant 150 Cash 50700Related Questions
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