Question

Problem: In recent years, Hrubeck Company purchased three machines. Because of heavy turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods were selected. Information concerning the machines is summarized below. Useful Life in Years Machine Acquired 7/1/16 1/1/13 1/1/18 Cost $76,000 $80,000 $78,000 Salvage Value $6,000 $10,000 $6,000 Depreciation Method Straight-line Declining balance Units-of-activity Notes: For the declining balance method, the company uses the double declining rate of the straight-line rate). For the units-of-activity method, total machine hours are expected to be 24,000. Actual hours of use in the first 3 years are shown on the depreciation schedule. Instructions: 1 For each machine, complete a depreciation schedule that records annual depreciation expense, accumulated depreciation, and book value. 2 Journalize the depreciation adjusting entry for all 3 machines at December 31, 2020. Check figures: Machine 1 accumulated depreciation at end of Year 5 = $31,500 Machine 2 book value at start of Year 4 = $33,750 Machine 3 depreciation expense for Year 1 = $3,000

machine 1:
cost 76,000
salvage value 6,000
useful life 10 years
purchased 7/1/16

machine 2:
cost 80,000
salvage value 10,000
useful life 8 years
purchased 1/1/13

machine 3:
cost 78,000
salvage value 6,000
useful life 6 years = 24,000 hours
purchased 1/1/18

Answer 1

1.

Depreciation on Machine 1:

Depreciation = (Purchase price - Salvage value) / Useful life of asset

Depreciation = (76000 - 6000) / 10

Depreciation = $7000

Depreciation for 2016 will be taken half yearly as machine is purchased on 1 July 2016.

Thus, depreciation for 2016 be $3500 and for remaining years its $7000.

Accumulated depreciation 2016 = $3500

Accumulated depreciation 2017 = $3500+7000 = $10500

Accumulated depreciation 2018 = 10500+ 7000= $17500

Accumulated depreciation 2019 = 17500+7000 = $24500

Accumulated depreciation 2019 = 24500+7000= $31500

Accumulated depreciation 2020 = 31500+7000 = $38500

Depreciation under straight line method will be same for each year till useful life of asset i.e., $7000.

Depreciation on Machine 2:

Depreciation rate = 2*(Cost of machine / Useful life )/Cost of machine * 100

Depreciation rate = 2 * (80000 / 8) / 80000 * 100

Depreciation rate = 25%

Year	Book value at beginning	Depreciation rate	Depreciation expense	Accumulated depreciation	Book value at the end
A	B	C	D	E	F
2013	80000	25%	20000	20000	60000
2014	60000	25%	15000	35000	45000
2015	45000	25%	11250	46250	33750
2016	33750	25%	8438	54688	25313
2017	25313	25%	6328	61016	18984
2018	18984	25%	4746	65762	14238
2019	14238	25%	3560	69321	10679
2020	10679	25%	2670	71991	8009

Depreciation on Machine 3:

Year	Book value at beginning	Salvage value	Depreciation expense	Accumulated depreciation	Book value at the end
A	B	C	D	E	F
			(B-C)/Total hours * hours used		B-D
2018	78000	6000	(78000-6000)/24000 * 1000 = 3000	3000	75000

2.

Prepare the journal entry for all the 3 machines as follows:

Date	Particulars	Debit	Credit
	Machine 1:
31.12.2020	Depreciation expense	7000
	Accumulated depreciation		7000
	Machine 2:
31.12.2020	Depreciation expense	2670
	Accumulated depreciation		2670

Machine 3:

Actual machine hours for Year 3 is not provided in the question.