On January 1, 20X3, Perkins Printing Corporation purchased a digital press for $
ID: 2463903 • Letter: O
Question
On January 1, 20X3, Perkins Printing Corporation purchased a digital press for $1,450,000. It cost an additional $50,000 to deliver, install, and calibrate the press. This machine has a service life of 5 years, at which time it is expected that the device will be scrapped for a $100,000 salvage value. Perkins uses the straight-line depreciation method. `
(a) Prepare a schedule showing annual depreciation expense, accumulated depreciation, and related calculations for each year.
(b) Show how the asset and related accumulated depreciation would appear on a balance sheet at December 31, 20X5.
(c) Prepare journal entries to record the asset's acquisition, annual depreciation for each year, and the asset's eventual sale for $100,000.
Explanation / Answer
Straight line depreciation = (Cost of the machine - salvage value) / useful life Cost of machine = Purchase cost + Cost of delivery,installation and calibration Cost of machine = $1450000 + $50000 = $1500000 Salvage value = $100000 Useful life = 5 years Straight line depreciation = (15,00,000 - 1,00,000) / 5 = $280000 per year Answer a Year Depreciation Accumulated Depreciation 20X3 280000 280000 20X4 280000 560000 20X5 280000 840000 20X6 280000 1120000 20X7 280000 1400000 Answer b Balance sheet presentation of asset and accumulated depreciation as on December 31,20X5 Asset Side In $ Gross Value Digital Press 15,00,000 (-) Accumulated depreciation 8,40,000 Net value of Digital Press 6,60,000 Answer c Journal Entries Date Account titles Debit Credit January 1,20x3 Digital Press 1450000 Cash 1450000 (Machine purchased) January 1,20x3 Digital Press 50000 Cash 50000 (Delivery,installation and calibration cost capitalised) December 31,20x3 Depreciation 280000 Accumulated depreciation 280000 December 31,20x4 Depreciation 280000 Accumulated depreciation 280000 December 31,20x5 Depreciation 280000 Accumulated depreciation 280000 December 31,20x6 Depreciation 280000 Accumulated depreciation 280000 December 31,20x7 Depreciation 280000 Accumulated depreciation 280000 December 31,20x7 Cash 100000 Accumulated depreciation 1400000 Digital Press 1500000 (Sale of machinery)