Hunt Company purchased factory equipment with an invoice price of $90,000 on Jan

Question

Hunt Company purchased factory equipment with an invoice price of $90,000 on Jan 1. Other costs incurred were freight costs, $1,100; installation wiring and foundation, $2,200; material and labor costs in testing equipment, $700; oil lubricants and supplies to be used with equipment, $500; fire insurance policy covering equipment, $1,400. The equipment is estimated to have a $5,000 salvage value at the end of its 8-year useful service life. Instructions (a) Compute the acquisition cost of the equipment. Clearly identify each element of cost. (b) If the double-declining-balance method of depreciation was used, show the journal entry to record depreciation expense for the first fiscal year on Dec.31.

Explanation / Answer

Hunt Company a Acquisition cost of Equipment Details Amt $ Invoice Amount                          90,000 Freight                            1,100 Installation, wiring, foundation                            2,200 Material & Labor for testing                                700 Total cost of Acquisition                          94,000 ( cost of lubricants , supplies and fire insurance are opearional expenses) b Useful life in years                                     8 Straight Line depreciation rate = 12.50% Double declining depreciation rate = 25.00% Depreciation expense for first fiscal=Book value*25%=                          23,500 Journal Entry Date Account title Dr$ Cr $ Dec31. Accumulated Depreciation-Machinery                    23,500 Depreciation expense                          23,500

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