Question

O'Connor Company ordered a machine on January 1 at a purchase price of $20,000. On the date of delivery, January 2, the company paid $5,000 on the machine and signed a long-term note payable for the balance. On January 3, it paid $200 for freight on the machine. On January 5, O'Connor paid cash for installation costs relating to the machine amounting to $1,200. On December 31 (the end of the accounting period), O'Connor recorded depreciation on the machine using the straight-line method with an estimated useful life of 10 years and an estimated residual value of $2,100. Required: 1. Indicate the effects (accounts, amounts, and + for increase, - for decrease) of each transaction (on January 1, 2, 3, and 5) on the accounting equation. 2. Compute the acquisition cost of the machine. 3. Compute the depreciation expense to be reported for the first year. 4. What should be the book value of the machine at the end of the second year? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Indicate the effects (accounts, amounts, and + for increase, - for decrease) of each transaction (on January 1, 2, 3, and 5) on the accounting equation. (Enter any decreases to account balances with a minus sign.) Assets Liabilities Stockholders' Equity Date Jan 01 Jan 02 Jan 03 Jan 05 Required 1 Required 2 >

Answer 1

effects

	Assets	liabilities	stockholder's equity
Jan 01	machine +20000	account payable +20000
Jan 02	cash -5000	account payable -20000
		long term note payable +15000
Jan 03	machine +200
	cash -200
Jan 05	machine +1200
	cash -1200

2.acquisition cost is the total cost of machine required to get the machine ready for intended purpose

=20000+200+1200

=21400$

3.depreciation expense-straight line

cost-salvage / number of uselful years

=21400-2100 /10

=1930$ is depreciation for year 1

4.

year	book value at the beginning	depreciation	book value at the year end
1	21400	1930	19470[21400-1930]
2	19470	1930	17540$

year 2 =17540$ book value at year end 2