O\'Connor Company ordered a machine on January 1 at a purchase price of $25,000.

ID: 2509860 • Letter: O

Question

O'Connor Company ordered a machine on January 1 at a purchase price of $25,000. On the date of delivery, January 2, the company paid $6,000 on the machine and signed a long-term note payable for the balance. On January 3, it paid $300 for freight on the machine. On January 5, O'Connor paid cash for installation costs relating to the machine amounting to $1,500. On December 31 (the end of the accounting period), O'Connor recorded depreciation on the machine using the straight-line method with an estimated useful life of 10 years and an estimated residual value of $2,700 Required 1. Indicate the effects (accounts, amounts, andfor increase for decrease) of each transaction (on January 1, 2, 3, and 5) on the accounting equation. (Enter any decreases to account balances with a minus sign.) Stockholders' Equity Date Jan 01 Jan 02 Assets Liabilities Jan 03 Jan 05 2. Compute the acquisition cost of the machine n Cost 3. Compute the depreciation expense to be reported for the first year. (Do not round intermediate calculations.) n Expense 4. What should be the book value of the machine at the end of the second year? (Do not round intermediate calculations.) Book Value

Explanation / Answer

Answer:-

Date

Assets

Liabilities

Shareholder ‘ Equity

Jan 1

No Entry

Jan 2

Cash -$6000

Long term Note Payable +19000

Equipment + $25000

Jan 3

Cash -$300

Equipment +$1000

Jan 5

Cash -$1500

Equipment +$1500

2. Total acquisition costs: All costs necessary to get the asset ready for its intended used are aggregated

$26,800 ($25,000 + $300 + $1,500)

3.Depreciation Expense: Original Cost - Salvage Value / Useful Life

($26,800 - $2,750)/10 = $2,405

Book value: Original Cost - Accumulated Depreciation

$26,800 - $2,405 = $24,395