CP9-1 Computing Acquisition Cost and Recording Depreciation under Three Alternat

Question

CP9-1 Computing Acquisition Cost and Recording Depreciation under Three Alternative Methods 10 92,LO 93] At the beginning of the year, Young Company bought three used machines from Vince, Inc. The machines immediately were overhauled, were installed, and started operating. Because the machines were different each was recorded separately in the accounts Machine A Machine B Machino C Amount paid for asset Installation costs Renovation costs prior t Repairs after production began $8,500 $27.400 $11,100 500 1,600 1,300 200 600 use 3,300 580 775 By the end of the first year, each machine had been operating 8,000 hours Required 1. Compute the cost of each machine. Cost of Machire A Machine B Machine C O Type here to search

Explanation / Answer

Answer 1

Computation of costof each machine

Answer 2

Working Note 1 : Machine A Depreciation for Year 1 under SLM

Depreciation = ( Cost - Residual value ) / Life = ($12,000 - $400) / 5 years = $2,320

Working Note 2 : Machine B Depreciation for Year 1 under Unit of production method

Depreciation : = [(Cost - Residual value) / Life of assets in hours] * Number of hours operate

= [($29,600 - $1,000 ) / 40,000 hours ] * 8,000 hours = $5,720

Working Note 3 : Machine C Depreciation for Year 1 under DDB method

Depreciation = 2 * SLM rate * Book value at the beginning of the year

SLM rate =1 / life

Depreciation = 2 * 1 / 6* $12,900 = $4,300

Journal Entry

Particulars Machine A ($) Machine B ($) Machine C ($) Amount paid for assets 8,500 27,400 11,100 Add : Installation cost 200 600 500 Add : Renovation cost prior to use 3,300 1,600 1,300 Total cost of machine $12,000 $29,600 $12,900

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