Question

Pearl Corporation acquired manufacturing machinery on January 1 for $9,000. During the year, the machine produced 1,000 units, of which 600 were sold. There was no work-in-process inventory at the beginning or at the end of the year. Installation charges of $300 and delivery charges of $200 were also incurred. The machine is expected to have a useful life of five years with an estimated salvage value of $1,500. Pearl uses the straight-line depreciation method. The original cost of the machinery to be recorded in Pearl's books is:

a) $9,500
b) $9,300
c) $9,200
d) $9,000

Answer 1

The original cost of the machinery to be recorded in Pearl's books is $9,000.

Step-by-step explanation:

The original cost of the machinery to be recorded in Pearl's books is d) $9,000.

The original cost of the machinery includes the purchase price of $9,000 and the installation and delivery charges of $300 and $200, respectively. The total cost of the machinery is $9,500 ($9,000 + $300 + $200).

However, since Pearl uses the straight-line depreciation method, the estimated salvage value of $1,500 should be subtracted from the total cost. Therefore, the original cost of the machinery to be recorded in Pearl's books is $9,000 ($9,500 - $1,500).