Question

At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts.

	Machine A			Machine B			Machine C
Cost of the asset	$	9,800		$	39,000		$	22,800
Installation costs		950			2,900			2,000
Renovation costs prior to use		750			2,500			3,000
Repairs after production began		500			900			1,500

By the end of the first year, each machine had been operating 8,000 hours.

Required:

1. Compute the cost of each machine.
2. Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following:

	Estimates
Machine	Life		Residual Value				Depreciation Method
A	5	years		$	1,800		Straight-line
B	20,000	hours			1,400		Units-of-production
C	10	years			2,200		Double-declining-balance

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2

Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following: (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)

No	Transaction	General Journal	Debit	Credit
1	1	Depreciation Expense
		Accumulated Depreciation - Machine A		3,980
		Accumulated Depreciation - Machine B
		Accumulated Depreciation - Machine C

• Required 1

Answer 1

Requirement 1

	Total Cost of Machine
Machine A	$      11,500.00
Machine B	$      44,400.00
Machine C	$      27,800.00

Working

	Amount paid for assets	Installation cost	Renovation cost	Total Cost of Machine
Machine A	$         9,800.00	$            950.00	$               750.00	$    11,500.00
Machine B	$       39,000.00	$        2,900.00	$           2,500.00	$    44,400.00
Machine C	$       22,800.00	$        2,000.00	$           3,000.00	$    27,800.00

Requirement 2

Transaction	General Journal	Debit	Credit
1..	Depreciation expense	$    24,700.00
	Accumulated depreciation-Machine A		$        1,940.00
	Accumulated depreciation-Machine B		$      17,200.00
	Accumulated depreciation-Machine C		$        5,560.00
	(To record depreciation expense)

Working

Straight line Method
A	Cost	$ 11,500
B	Residual Value	$ 1,800
C=A - B	Depreciable base	$ 9,700
D	Life [in years left ]	5
E=C/D	Annual SLM depreciation	$               1,940.00

.

Units of Production method
A	Cost	$ 44,400
B	Residual Value	$ 1,400
C=A - B	Depreciable base	$ 43,000
D	Usage in units(in Hours)	20000
E	Depreciation per hour	$                        2.15

.

Depreciation schedule-Units of Activity
Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$                44,400	8000	$                   17,200	$                    27,200	$               17,200

.

Double declining Method
A	Cost	$ 27,800
B	Residual Value	$ 1,500
C=A - B	Depreciable base	$ 26,300
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$ 2,630
F=E/C	SLM Rate	10.00%
G=F x 2	DDB Rate	20.00%

.

Depreciation schedule-Double declining
Year	Beginning Book Value	Depreciation rate	Depreciation expense	Accumulated Depreciation	Ending Book Value
1	$ 27,800	20.00%	$ 5,560	$ 5,560	$ 22,240