Question

At the beginning of the year, Plummer’s Sports Center bought three used fitness machines from Advantage, Inc. The machines immediately were overhauled, installed, and started operating. The machines were different; therefore, each had to be recorded separately in the accounts.
Machine A Machine B Machine C

Amount paid for asset $ 22,900 $ 32,100 $ 19,550

Installation costs 1,900 2,400 900

Renovation costs prior to use 4,200 3,000 1,600

By the end of the first year, each machine had been operating 5,000 hours.

1. Prepare the 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.)

ESTIMATES

Machine Life Residual Value Depreciation Method

A 8 years $1,800 Straight-line

B 69,000 hours 3,000 Units-of-production

C 7 years 1,700 Double-declining-balance

Transaction General Journal Debit Credit

Answer 1

Answer:

1) Journal Entry

Debit Depreciation Expense $11,714 Credit Accumulated Depreciation on : Machine A $3,400, Machine B $2,500 Machine C $5,814

Explanation

                                  Machine A    Machine B     Machine C

Purchase Price        $22,900        $32,100          $19,550

Installation cost       $1,900           $2,400           $900

Renovation cost      $4,200         $3,000            $1,600

Total Cost               $29,000       $37,500          $22,050

Residual Value      -$1,800         -$3,000           -$1,700

Depreciable value $27,200        $34,500         $20,350

Depreciation method:

Straight line = (Cost- Residual Value)/useful life = 27,200/8 yrs = $3,400

Units of production = Depreciable value * units produced / total units that can be produced over the life = 34,500 * 5,000/69,000 =$2,500

Double declining Balance = 2 * (cost of asset - Residual Value ) /Useful life

                                           = 2*(20,350/7) = $5,814

Depreciation Expense = $3,400 + $2,500 + $5,814 = $11,714

To get total cost, we add all the costs incurred for the asset to be in the location where it will operate in and also add the cost incurred to make the Asset be in a working Condition.

Depreciation value = cost - residual value

Depreciation expense is recorded at total only accumulated depreciation is separated.