PA9-1 Computing Acquisition Cost and Recording Depreciation under Three Alternat

Question

PA9-1 Computing Acquisition Cost and Recording Depreciation under Three Alternative Methods [LO 9-2, LO 9-3] At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts Cost of the asset Installation costs Renovation costs prior to use Repairs after production began Machine A Machine B Machine $9,700 $38,900 $22,700 1,900 2,900 1,400 2,800 2,400 800 700 800 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 Machine

Explanation / Answer

Req. 1 Cost of each machine: Machine A B C Total Purchase price $9,700 $38,900 $22,700 $71,300 Installation costs 900 2,800 1900 $5,600 Renovation costs 700 2,400 2,900 $6,000 Total cost $11,300 $44,100 $27,500 $82,900 Req. 2 Computation of depreciation at the end of year 1 for each machine: Machine Method Computation A Straight-line ($11,300 - $1,700) x 1/5 = $1,920 B Units-of-production ($44,100 - $1,300)÷ 20,000 hours = $2.14 $2.14 x 8,000 hours = $17,120 C Double-declining-balance ($27,500 -$0) x 2/10 = $5,500 Adjusting entry: Depreciation expense ($1,920 + $17,120 + $5,500) (+E, -SE) 24,540 Accumulated depreciation, Machine A (+XA, -A) 1,920 Accumulated depreciation, Machine B (+XA, -A) 17,120 Accumulated depreciation, Machine C (+XA, -A) 5,500

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