Question 1 The Jacob Company uses various methods to record depreciation on diff

Question

Question 1 The Jacob Company uses various methods to record depreciation on different type of assets. It depreciates Building A using the sum of the years method, machine Z based on the double declining balance method and machine W based on the activity method. Building A was purchased on April 1, 2013 at a cost of $6,200,000. It has a salvage value of $400,000 and a life of 20 years. Machine Z was purchased on June 1, 2013 at a cost of $62,000. It has a salvage value of $2,000 and a life of 8 years. Machine W was purchased on July 1, 2013 at a cost of $450,000 having a residual value of $35,000 and is estimated to be able to produce 100,000 units in its lifetime. In 2013 21,000 units were produced, 52,000 units in 2014 and 49,000 units in 2015. Required: 1) Calculate the depreciation expense or each asset for the years 2013-2015 2) Prepare the entry to record the depreciation expense for the full year 2015 3) Suppose on January 1, 2016 Jacob sells machine Z to Andrew Company at a price of $31,500. Record the entry on Jacob's books including any possible gain or loss.

Explanation / Answer

1.

Calculate depreciation as follows:

Building A

Depreciation for 2013 = [($6,200,000-$400,000)/20] x 9/12 = $217,500

Depreciation for 2014 = ($6,200,000-$400,000)/20 = $290,000

Depreciation for 2015 = ($6,200,000-$400,000)/20 = $290,000

Machine Z

Depreciation for 2013 = [($62,000-$2,000)/8] x 7/12 = $4,375

Depreciation for 2014 = ($62,000-$2,000)/8 = $7,500

Depreciation for 2015 = ($62,000-$2,000)/8 = $7,500

Machine W

Depreciation rate

= (Cost - Salvage value)/Estimated production in its lifetime

= ($450,000-$35,000)/100,000

= $4.15 per unit produced

Depreciation for 2013 = Units produced in 2013 x Depreciation rate = 21,000 x $4.15 = $87,150

Depreciation for 2014 = 52,000 x $4.15 = $$215,800

Depreciation for 2015 = 49,000 x $4.15 = $203,350

2.

Prepare the entry to record depreciation expense for the full year 2015 as follows:

          

3.

Entry to record sale of machine Z will be prepared as follows:

Date Account Titles and Explanation Debit Credit Dec. 31 Depreciation Expense 500,850            Accumulated Depreciation - Building A 290,000            Accumulated Depreciation - Machine Z 7,500            Accumulated Depreciation - Machine W 203,350

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