On January 1, 2015, Evers Company purchased the following two machines for use i

Question

On January 1, 2015, Evers Company purchased the following two machines for use in its production process.

Machine AThe cash price of this machine was $44,100. Related expenditures included: sales tax $3,600, shipping costs $140, insurance during shipping $70, installation and testing costs $100, and $190 of oil and lubricants to be used with the machinery during its first year of operations. Evers estimates that the useful life of the machine is 5 years with a $4,400 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used.

Machine B:The recorded cost of this machine was $204,800. Evers estimates that the useful life of the machine is 4 years with a $11,600 salvage value remaining at the end of that time period.

Prepare the following for Machine A. (Round answers to 0 decimal places, e.g. 2,125. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

1.)The journal entry to record its purchase on January 1, 2015.

2.The journal entry to record annual depreciation at December 31, 2015.

Calculate the amount of depreciation expense that Evers should record for Machine B each year of its useful life under the following assumptions. (Round depreciation cost per unit to 2 decimal places, e.g. 12.25 and final answers to 0 decimal places, e.g. 2,125.)

1.)Evers uses the straight-line method of depreciation.

2.)Evers uses the declining-balance method. The rate used is twice the straight-line rate.

3.Evers uses the units-of-activity method and estimates that the useful life of the machine is 105,900 units. Actual usage is as follows: 2015, 44,200 units; 2016, 32,300 units; 2017, 18,000 units; 2018, 11,400 units.

For the years 2015-2018

Explanation / Answer

Machine A)

According to the FASB Codification, the cost of acquiring property and equipment “includes the costs necessarily incurred to bring it [the piece of property or equipment] to the condition and location necessary for its intended use.” It is important to note that the term “property and equipment” includes office equipment, machinery, furniture and fixtures, computers, factory equipment, and other similar fixed assets. The following are expenditures that should be included in the capitalized asset’s cost:

• Purchase price
• Sales taxes
• Transportation charges incurred (freight-in)
• Insurance on the equipment while in transit
• Assembling and installation costs
• Costs of conducting trial runs – that is if the asset needs to be tested before it can be put to use
• Delinquent taxes
• Direct and indirect costs of constructing an entity’s own assets, including interest costs, where appropriate

Thus cost of the machine A:

1)

Machine B

Straight line depreciation per year =  (204800-11600)/4 = $48300

Depreciation under double declining balance method:

Rate of depreciation = twice the straight line rate = 2 * (1/4) * 100 % = 50%

Depreciation  Under units of activity method:

Depreciation per unit = (204800-11600)/105900 = 193200/105900 = $1.824 per unit

Depreciation for year 2015 = 44200 * 1.824 = $80621

Depreciation for year 2016 = 32300 * 1.824 = $58915

Depreciation for year 2017 = 18000 * 1.824 = $32832

Depreciation for year 2018 = 11400 * $1.824 = $20794

cash price 44100 shipping costs 140 insurance during shipping 70 installation and testing 100 oils and lubricants 190 Sale Tax 3600    Cost of the machine 48200

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