Chapter 9, Problem 1PA

Computing Acquisition Cost and Recording Depreciation under Three Alternative Methods

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.

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

Required:

1. Compute the cost of each machine. Explain the rationale for capitalizing or expensing the various costs.

2. Give the journal entry to record depreciation expense at the end of year 1, assuming the following: