CP9-1 Computing Acquisition Cost and Recording Depreciation under Three Alternat
ID: 2567630 • Letter: C
Question
CP9-1 Computing Acquisition Cost and Recording Depreciation under Three Alternative Methods [LO 9-2, LO 9-3]
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 Machine C
Amount paid for asset $ 7,600 $ 25,600 $ 9,300
Installation costs 200 600 500
Renovation costs prior to use 1,500 1,200 1,000
Repairs after production began 400 350 325
By the end of the first year, each machine had been operating 7,000 hours.
Required:
1. Compute the cost of each machine.
2.
Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following: (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)
Estimates
Machine Life Residual Value Depreciation Method
A 5 years $ 600 Straight-line
B 40,000 hours 1,000 Units-of-production
C 6 years 2,000 Double-declining-balance
TIP: Remember that the formula for double-declining-balance uses cost minus accumulated depreciation (not residual value).
Explanation / Answer
1.The following is the calculation of cost of machines:
cost inculdes = amount paid + installation cost + renovation cost
but excludes the repairs after production began.
2. Journal entry for depreciation:
working note: annual depreciaton on machine A (straight line method) =>cost - residual value / life
=>(9,300 - 600) / 5 years
=>$1,740.
annual depreciaton on machine B (units of production method) => (cost - residual value) / total hours * hours used.
=>($27,400 - $1,000) / 40,000 * 7,000
=>$4,620.
Depreciation on machine C = (cost - accumulated depreciation) * (2 / life of asset)
=>($10,800 - $0) * (2 / 6years)
=>$3,600.
The following is the required journal entry:...(a composite entry is presented below).
Machine A ($7600 + 200 + 1500) $9,300 Machine B ($25,600 +600+1200) $27,400 Machine C ($9,300 + 500 + 1000) $10,800