Question

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 $ 8,250 $ 26,900 $ 10,600 Installation costs 250 650 550 Renovation costs prior to use 2,800 1,350 1,750 Repairs after production began 530 480 650 By the end of the first year, each machine had been operating 9,000 hours. Required: Compute the cost of each machine. Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following: TIP: Remember that the formula for double-declining-balance uses cost minus accumulated depreciation (not residual value). Estimates Machine Life Residual Value Depreciation Method A 5 years $ 200 Straight-line B 50,000 hours 1,000 Units-of-production C 6 years 2,400 Double-declining-balance

Answer 1

Answer and Explanation:

a. The computation of cost of machine is shown below:-

                                                          Machine A   Machine B       Machine C

Amount paid for Assets                   $8,250          $26,900          $10,600

Add: Installation Cost                       $250             $650               $550

Add: Renovation Cost prior to use  $2,800         $1,350             $1,750

Total Cost                                          $11,300         $28,900          $12,900

b. To record the depreciation expense at the end of year 1 is shown below:-

Depreciation expense Dr, $11,402

     To Accumulated Depreciation-Machine A $2,080

     To Accumulated depreciation-Machine B $5,022

     To  Accumulated Depreciation-Machine C $4,300

(Being depreciation expenses is recorded)

Working note

For Machine A

Depreciable amount = Cost of Assets - Salvage Value

= $10,600 - $200

= $10,400

Depreciation expenses = Depreciable amount ÷ Life

= $10,400 ÷ 5

= $2,080

For Machine B

Depreciable amount = Cost of Assets - Salvage Value

= $28,900 - 1,000

= $27,900

Depreciation rate per hour = Depreciation expenses = Depreciable amount ÷ Life

= $27,900 ÷ 50,000

= 0.558

Depreciation expense = Depreciation rate per hour × Number of hours worked

= 0.558 × 9,000

= $5,022

For Machine C

Rate of double declining method = 1 ÷ 6 × 2

= 33.33%

Depreciation expense = Cost of assets × Rate of double declining method

= $12,900 × 33.33%

= $4,300