On June 1, 2019, Concord Company purchased the following machine for use in its
ID: 2548255 • Letter: O
Question
On June 1, 2019, Concord Company purchased the following machine for use in its production process.
The cash price of this machine was $37,500. Related expenditures included: sales tax $3,600, shipping costs $100, insurance during shipping $50, installation and testing costs $120, and $150 of oil and lubricants to be used with the machinery during its first year of operations. Concord estimates that the useful life of the machine is 4 years with a $5,950 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used.
A. Prepare the following:
1.
The journal entry to record its purchase on June 1, 2019.
2.
The journal entry to record annual depreciation at December 31, 2019.
B. Calculate the amount of depreciation expense that Concord should record for each year of its useful life under the following assumptions.
(1)
Concord uses the straight-line method of depreciation.
(2)
Concord uses the declining-balance method. The rate used is twice the straight-line rate.
(3)
Concord uses the units-of-activity method and estimates that the useful life of the machine is 117,100 units. Actual usage is as follows: 2019, 45,000 units; 2020, 33,500 units; 2021, 22,000 units; 2022, 16,600 units.
Straight-Line
Cost
Depreciation
Rate
Annual Depreciation
Expense
Accumulated Depreciation
Book Value
Year 1
2019
Year 2
2020
Year 3
2021
Year 4
2022
Year 5
2023
Units of Activity
Cost
Depreciation
Rate
Annual Depreciation
Expense
Accumulated Depreciation
Book Value
Year 1
Year 2
Year 3
Year 4
Year 5
Declining Balance
Cost
Depreciation
Rate
Annual Depreciation
Expense
Accumulated Depreciation
Book Value
Year 1
Year 2
Year 3
Year 4
Year 5
The cash price of this machine was $37,500. Related expenditures included: sales tax $3,600, shipping costs $100, insurance during shipping $50, installation and testing costs $120, and $150 of oil and lubricants to be used with the machinery during its first year of operations. Concord estimates that the useful life of the machine is 4 years with a $5,950 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used.
Explanation / Answer
Jun 1 2009 : Record Purchase
Requirement A Cost of Machine 37500 Sales tax 3600 shipping 100 Insurance 50 Installation and Testing 120 Capitalized cost of Machine 41370 Expense -Repair & maintenance 150 Debit CreditJun 1 2009 : Record Purchase
Fixed Assets 41370 Expense- Repairs and Maintenance 150 Cash 41520 December 31 2019 : Record of Annual Depreciation Depreciation Expense (35420/5) X 7/12 5165 Accumulated Depreciation 5165 (Capitalised cost - Salvage Value)/4 = Annual DepreciationRelated Questions
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