At the beginning of the year, Plummer’s Sports Center bought three used fitness

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. Machine A Machine B Machine C Amount paid for asset $ 22,200 $ 36,900 $ 25,000 Installation costs 2,400 1,400 1,500 Renovation costs prior to use 4,500 1,800 2,300 By the end of the first year, each machine had been operating 5,200 hours.

ESTIMATES

Calculate the depreciation expense for year 1.

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.)

Explanation / Answer

Amount to be included for depreciation of each machine = purchase price+installation costs+renovation costs. Installation costs and renovation costs are considered to be necessary to get an asset in place and to make the asset ready for use.

Thus amounts are:

Depreciation of Machine A = (total cost - residual value)/life

= (29100-2500)/7 = $3,800 per year. This will be the amount for the 1st year as well.

Depreciation of Machine B = (hours in 1st year/life in hours)*(cost - residual value)

= (5200/76000)*(40100 - 2100)

= 0.068421*38,000

= $2,600

Depreciation for Machine C: straight line rate = 100%/9 years = 11.11111111%. Rate under double declining balance method = 11.11%*2 = 22.22%

Beginning book value of C = 28,800. Depreciation = 22.2222222% of 28,800 = $6,400

Thus depreciation for year 1 = depreciation of A+ depreciation of B + depreciation of C

= 3800+2600+6400

= $12,800

Journal entry:

Depreciation expenses (Dr) $12,800

Accumulated depreciation (Cr) $12,800

(Depreciation expense account is a income statement account and accumulated depreciation is a Balance Sheet account).

Machine Purchase price Installation costs Renovation costs Total costs A 22,200 2,400 4,500 29,100 B 36,900 1,400 1,800 40,100 C 25,000 1,500 2,300 28,800

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