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4. Watmore Ltd. purchased, for cash, factory equipment with an invoice price of $80,000. Other costs...

4. Watmore Ltd. purchased, for cash, factory equipment with an invoice price of $80,000. Other costs incurred were freight costs, $1,600; installation, wiring and foundation, $13,500; material and labour costs in testing equipment, $500; oil lubricants and supplies to be used while operating the equipment, $750; fire insurance policy covering equipment, $1,400. The equipment is estimated to have a $10,000 residual value at the end of its 8-year useful service life. (8 marks)

Instructions

(a)   Calculate the cost of the equipment.

(b)   Record the purchase of the equipment.

(c)   Calculate the annual depreciation expense, assuming the straight-line method of depreciation is used.

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Answer #1

(a)

cost of the equipment = invoice price + freight cost + installation wiring and foundation cost + material and labor cost in testing equipment

= $80000 + $1600 + $13500 + $500

= $95600

(b)

journal entry

Equipment dr.

To Cash

$95600

.

.

$95600

(c)

depreciation per annum = ($95600 - $10000)/8

= $10700

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