Answer:
Machine A:
total purchase cost = $48,000 + $1,700 + $150 + $80 + $70 = $50,000
useful life 5 years, residual value $5,000
straight line depreciation = ($50,000 - $5,000) / 5 = $9,000 per year
Machine B:
total purchase cost = $180,000
useful life 4 years, residual value $10,000
1.
Prepare the following for Machine A.
a. The journal entry to record its purchase on January 1, 2017.
- Dr Equipment - machine A 50,000
- Cr Cash or accounts payable 50,000
b. The journal entry to record annual depreciation at December 31, 2017.
- Dr Depreciation expense equipment - machine A 9,000
- Cr Accumulated depreciation equipment - machine A 9,000
2.
Calculate the amount of depreciation expense that Evers should record for Machine B each year of its useful life under the following assumptions.
a. Evers uses the straight-line method of depreciation.
- depreciation expense per year = ($180,000 - $10,000) / 4 = $42,500 per year
b. Evers uses the declining-balance method. The rate used is twice the straight-line rate.
- the depreciation expense for years:
- 2017 = 2 x 25% x $180,000 = $90,000
- 2018 = 2 x 25% x $90,000 = $45,000
- 2019 = 2 x 25% x $45,000 = $22,500
- 2020 = $22,500 - $10,000 = $12,500
c. Evers uses the units-of-activity method and estimates that the useful life of the machine is 125,000 units. Actual usage is as follows:
- depreciation expense per unit = ($180,000 - $10,000) / 125,000 units = $1.36 per unit. Depreciation expense per year:
- 2017 = 45,000 x $1.36 = $61,200
- 2018 = 35,000 x $1.36 = $47,600
- 2019 = 25,000 x $1.36 = $34,000
- 2020 = 20,000 x $1.36 = $27,200
3.
Which method used to calculate depreciation on Machine B reports the highest amount of depreciation expense in year 1 (2017)?
- double declining balance ($90,000)
a. The highest amount in year 4 (2020)?
- straight line method ($42,500)
b. The highest total amount over the 4-year period?
- all the methods have the same total amount ($170,000)