On January 1, 2017, Evers Company purchased the following two machines for use i
ID: 2402744 • Letter: O
Question
On January 1, 2017, Evers Company purchased the following two machines for use in its Machine A: The cash price of this machine was $47,500. Related expenditures included: sales tax $3,550, shipping costs $200, insurance during shipping $50, installation and testing costs $70, and $100 of oil and lubricants to be used with the machinery during its first year of operations. Evers estimates that the useful life of the machine is 5 years with a $5,350 salvage value remaining at the end of that time period. Assume that the straight-line method of deprediation is used. The recorded cost of this machine was $180,000. Evers estimates that the useful life of the machine is 4 years with a $10,100 salvage value remaining at the end of that time period. Machine B: Prepare the following for Machine A. (Round answers to 0 decimal places, e.g. 2,125. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) The journal entry to record annual epredadion at becenber 31, 2017, 2. The journal entry to record annual depreciation at Debit Credit No. Account Titles and Explanation 1. 2. Calculate the amount of depreciation expense that Evers should record for Machine B each year of its useful life under the following assumptions. (Round depreciation cost per unit to 2 decimal places, eg. 12.25. Round final answers to O decimal places, e.g. 2,125.) (1) Evers uses the straight-line method of depreciation. (2) Evers uses the declinina-balance method. The rate used is twice the straiaht-line rate. (3) Evers uses the units-of-activity method and estimates that the useful life of the machine is 104,100 units. Actual usage is as follows: 2017, 42,500 units; 2018, 30,500 units 2019, 18,500 units; 2020, 12,600 units. 2017 2018 2019 2020 Straight-line method Units-of-activity methodExplanation / Answer
Answers
Machine A
A
Cash Price
$ 47,500.00
B
Sales Tax
$ 3,550.00
C
Shipping cost
$ 200.00
D
Insurance
$ 50.00
E
Installation & Testing
$ 70.00
F
Oil & Lubricants
[not to be considered being revenue expenditure]
G = A+B+C+D+E+F
Total Cost to be capitalized
$ 51,370.00
H
Salvage Value
$ 5,350.00
I = G - H
Depreciable base
$ 46,020.00
J
Useful Life [years]
5
K = I / J
Annual Straight Line depreciation
$ 9,204.00
No.
Accounts title
Debit
Credit
1 (Jan 1)
Equipment (Machinery)
$ 51,370.00
Cash
$ 51,370.00
(cost of machinery capitalized)
2 ( 31 Dec)
Depreciation expense (machinery Equipment)
$ 9,204.00
Accumulated Depreciation (machinery Equipment)
$ 9,204.00
(depreciation expense for the period)
---Straight Line Method
A
Cost
$ 180,000.00
B
Residual Value
$ 10,100.00
C=A - B
Depreciable base
$ 169,900.00
D
Life [in years]
4
E=C/D
Annual SLM depreciation
$ 42,475.00
Year
Book Value
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 180,000.00
$ 42,475.00
$ 137,525.00
$ 42,475.00
2
$ 137,525.00
$ 42,475.00
$ 95,050.00
$ 84,950.00
3
$ 95,050.00
$ 42,475.00
$ 52,575.00
$ 127,425.00
4
$ 52,575.00
$ 42,475.00
$ 10,100.00
$ 169,900.00
---Declining Balance method
A
Cost
$ 180,000.00
B
Residual Value
$ 10,100.00
C=A - B
Depreciable base
$ 169,900.00
D
Life [in years]
4
E=C/D
Annual SLM depreciation
$ 42,475.00
F=E/C
SLM Rate
25.00%
G=F x 2
DDB Rate
50.00%
Year
Beginning Book Value
Depreciation rate
Depreciation expense
Ending Book Value
1
$ 180,000.00
50.00%
$ 90,000.00
$ 90,000.00
2
$ 90,000.00
50.00%
$ 45,000.00
$ 45,000.00
3
$ 45,000.00
50.00%
$ 22,500.00
$ 22,500.00
4
$ 22,500.00
$ 12,400
$ 11,250.00
---Units of activity Method
A
Cost
$ 180,000.00
B
Residual Value
$ 10,100.00
C=A - B
Depreciable base
$ 169,900.00
D
Usage
104100 units
E
Depreciation per unit
1.63
Year
Book Value
Usage
Depreciation expense
Ending Book Value
1
$ 180,000.00
42500
$ 69,275.00
$ 110,725.00
2
$ 110,725.00
30500
$ 49,715.00
$ 61,010.00
3
$ 61,010.00
18500
$ 30,155.00
$ 30,855.00
4
$ 30,855.00
12600
$ 20,538.00
$ 10,317.00
2017
2018
2019
2020
Straight Line Method
$ 42,475.00
$ 42,475.00
$ 42,475.00
$ 42,475.00
Declining balance Method
$ 90,000.00
$ 45,000.00
$ 22,500.00
$ 12,400.00
Unit of Activity Method
$ 69,275.00
$ 49,715.00
$ 30,155.00
$ 20,538.00
Highest amount of depreciation method in 2017
Declining balance Method
Highest amount in 2020
Straight Line Method
Highest total amount over 4 years
Straight Line Method and Declining balance Method
Machine A
A
Cash Price
$ 47,500.00
B
Sales Tax
$ 3,550.00
C
Shipping cost
$ 200.00
D
Insurance
$ 50.00
E
Installation & Testing
$ 70.00
F
Oil & Lubricants
[not to be considered being revenue expenditure]
G = A+B+C+D+E+F
Total Cost to be capitalized
$ 51,370.00
H
Salvage Value
$ 5,350.00
I = G - H
Depreciable base
$ 46,020.00
J
Useful Life [years]
5
K = I / J
Annual Straight Line depreciation
$ 9,204.00