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 Incorporated. The machines immediately were overhauled, installed, and started operating. Because the machines were different, each was recorded separately in the accounts.

     
   

  
   

  
    

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 account field. Do not round intermediate calculations.)

  
   

Estimates

  

  
   

  

Machine A Machine B Machine C    Cost of the asset $ 9,000 $ 38,200 $ 22,000   Installation costs 800 2,100 1,200   Renovation costs prior to use 600 1,700 2,200   Repairs after production began 500 600 700

Explanation / Answer

1 Cost of each machine:

A Purchase price ................. Installation costs............... Renovation costs.............. Total cost ...................... $ Machine A 9,000+ 800+ 600= $10,400

Machine B $38,200 + 2,100+ 1,700 = $42,000

Machine C Total $22,000 +1,200 +2,200= $25,400

                $69,200+ 4,100+ 4,500 =$77,800

The costs to purchase, install, and renovate were necessary to get the newly purchased equipment ready for use, so they are properly capitalized. Ordinary repairs after production began cannot be considered part of the cost of the equipment because they do not extend or enhance the asset beyond its original condition at the time of acquisition.

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