Chapter 8, Problem 8.3AP

Computing the Acquisition Cost and Recording Depreciation under Three Alternative Methods (P8-3)

At the beginning of the year, Ramos Inc. bought three used machines from Santaro Corporation. The machines immediately were overhauled, installed, and started operating. The machines were different: therefore, each had to be recorded separately in the accounts.

	Machine A	Machine B	Machine C
Cost of the asset	$12,200	$32,500	$21,700
Installation costs	1,600	1,100	1,100
Renovation costs prior to use	600	1,400	1,600

By the end of the first year, each machine had been operating 7,000 hours.

Required:

1. 1. Compute the cost of each machine.
2. 2. Give the entry to record depreciation expense at the end of Year 1 (with separate accumulated depreciation accounts for each machine), assuming the following:

ESTIMATES
Machine	Life	Residual Value	Depreciation Method
A	8 years	$1,000	Straight-line
B	33,000 hours	2,000	Units-of-production
C	5 years	1,400	Double-declining-balance