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 $10,600 $39,800 $23,600 Installation costs 850 3,700 2,800 Renovation costs prior to use 650 3,300 3,800 Repairs after production began 500 700 2,300 By the end of the first year, each machine had been operating 8,000 hours. Required: Compute the cost of each machine. Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following:
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
PART 1
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 $10,600 $39,800 $23,600
Installation costs 850 3,700 2,800
Renovation costs prior to use 650 3,300 3,800
Repairs after production began 500 700 2,300
By the end of the first year, each machine had been operating 8,000 hours.
Required:
- Compute the cost of each machine.
- Prepare the
journal entry to recorddepreciation expense at the end of year 1, assuming the following:
Estimates
__________________________________________
Machine Life Residual Value Depreciation Method
A 5 years $2,600 Straight-line
B 20,000 hours 2,200 Units-of-production
C 10 years 1,400 Double-declining-balance
Required 1
Compute the cost of each machine.
Cost of Machine
Machine A [ ]
Machine B [ ]
Machine C [ ]
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.)
- Record the depreciation expense for the three used machines at the end of year 1. (Note: Enter debits before credits.)
Transaction General Journal Debit Credit
1 [ ] [ ] [ ]
PART 2
Ly Company disposed of two different assets. On January 1, prior to their disposal, the accounts reflected the following:
Asset Original Residual Estimated Accumulated
Cost Value Life Depreciation (straight-line)
Machine A $33,000 $3,600 4years $22,050 (3 years)
Machine B 65,200 4,300 14years 47,850 (11 years)
The machines were disposed of in the following ways:
- Machine A: Sold on January 1 for $11,700 cash.
- Machine B: On January 1, this machine was sold to a salvage company at zero proceeds (and zero cost of removal).
Required:
1. & 2. Prepare the journal entries related to the disposal of Machine A and B at the beginning of the current year. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
- Record the current year depreciation for Machine A prior to disposal. (Note: Enter debits before credits.)
Date General Journal Debit Credit
January 01 [ ] [ ] [ ]
- Machine A: Sold on January 1 for $11,700 cash. Record the transaction. (Note: Enter debits before credits.)
Date General Journal Debit Credit
January 01 [ ] [ ] [ ]
- Record the current year depreciation for Machine B prior to disposal. (Note: Enter debits before credits.)
Date General Journal Debit Credit
January 01 [ ] [ ] [ ]
- Machine B: On January 1, this machine suffered irreparable damage from an accident and was removed immediately by a salvage company at no cost. Record the transaction. (Note: Enter debits before credits.)
Date General Journal Debit Credit
January 01 [ ] [ ] [ ]
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