At the beginning of the year, Grillo Industries bought three used machines from

Question

At the beginning of the year, Grillo Industries bought three used machines from Freeman iIncorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts. Cost of the asset Installation costs Renovation costs prior to use Repairs after production began800 59.700 $38,900 $22.,700 900 700 2.800 2.400 1.900 2,900 800 1,400 By the end of the first year, each machine had been operating 8,000 hours. 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: (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first aceount field. Do not round intermediate calculations.) Residual ValueDepreciation Method 5 years 20.000 hours S 1,700 1.300 2.100 Straight-line Units-of-production Double-declining-balance 10 years View tr list Journal entry worksheet Record the depreciation expense for the three used machines at the end of

Explanation / Answer

Machine

Cost of Asset

Installation Cost

Renovation Cost prior to use

Total Cost of the Asset

A

$9,700

$900

$700

$11,300

B

$38,900

$2,800

$2,400

$44,100

C

$22,700

$1,900

$2,900

$27,500

The cost of the asset includes its cost and all the costs incurred to bring the asset into use. Hence, the installation cost and renovation costs prior to use were included in the cost, while the repairs cost after production began is of expense nature and so does not form part of the cost of the asset.

Date

Account Titles and Explanation

Ref No.

Debit

Credit

EOY

Depreciation Expense - Machine A

$1,920

Accumulated Depreciation - Machine A

$1,920

(To record depreciation expense for Machine A using straight line method)

EOY1

Depreciation Expense - Machine B

$17,120

Accumulated Depreciation - Machine B

$17,120

(To record depreciation expense on Machine B using units of production method)

EOY1

Depreciation Expense - Machine C

$13,750

Accumulated Depreciation Expense - Machine C

$13,750

(To record depreciation expense on Machine C, using double declining balance method)

Machine A –

Straight line depreciation method;

Depreciation expense = depreciable base x 1/useful life

Depreciable base = cost – residual value

Cost = $11,300

Residual value = $1,700

Useful life = 5years

Depreciable base = 11,300 – 1,700 = $9,600

Depreciation expense = 9,600 x 1/5 = $1,920

Hence, depreciation expense for Machine A for Year 1 = $1,920

Machine B –

Units of production depreciation method;

Depreciation expense = depreciable base x Activity in year 1(hours)/estimated life in hours

Depreciable base = cost – residual value

Cost = $44,100

Residual value = $1,300

Estimated life in hours = 20,000 hours

Activity in year 1 = 8,000 hours

Depreciable base = 44,100 – 1,300 = $42,800

Depreciation expense = $42,800 x (8,000/20,000) = $17,120

Hence, depreciation expense for Machine B for Year 1 = $17,120

Machine C –

Double-declining balance method of depreciation;

Depreciation expense = cost x 2 x 1/useful life

Cost = $27,500

Useful life = 10 years

Depreciation expense Year 1 = $27,500 x 2 x 1/10 = $13,750

Hence, depreciation expense for Machine C for Year 1 = $13,750

Machine

Cost of Asset

Installation Cost

Renovation Cost prior to use

Total Cost of the Asset

A

$9,700

$900

$700

$11,300

B

$38,900

$2,800

$2,400

$44,100

C

$22,700

$1,900

$2,900

$27,500

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