Question

On January 1, 2019, Sunland Company purchased the following two machines for use in its production process.

Machine A: The cash price of this machine was $50,000. Related expenditures included: sales tax $3,700, shipping costs $100, insurance during shipping $60, installation and testing costs $70, and $100 of oil and lubricants to be used with the machinery during its first year of operations. Sunland estimates that the useful life of the machine is 5 years with a $5,050 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used.
Machine B: The recorded cost of this machine was $180,000. Sunland estimates that the useful life of the machine is 4 years with a $20,880 salvage value remaining at the end of that time period.
Prepare the following for Machine A. (Round answers to 0 decimal places, e.g. 2,125. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
1. The journal entry to record its purchase on January 1, 2019.
2. The journal entry to record annual depreciation at December 31, 2019.
No. Account Titles and Explanation Debit Credit 1.

Answer 1

1. Purchase of Machine A (Dr.) $54,030

Cash (Cr.) $54,030

2. Depreciation Machine A (Dr.) $9,796

Accumulated depreciation (Cr.) $9,796

3. Depreciation Machine B (Dr.) $39,780

Accumulated depreciation (Cr.) $39,780

Step-by-step explanation:

Machine A :

Cash price $50,000

Sales Tax $3,700

Shipping cost $100

Insurance $60

Installation and Testing $70

Oil and lubricants $100

Total cost of machine = $54,030

Depreciation = ( Cost - Salvage Value ) / Useful Life

Depreciation = ( $54,030 - 5,050 ) / 5 years = $9,796

Machine B :

Depreciation = ( 180,000 - 20,880 ) / 4 = $39,780