CP9-1 Computing Acquisition Cost and Recording Depreciation under Three Alternat
ID: 2551101 • Letter: C
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 searchExplanation / 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