O\'Connor Company ordered a machine on January 1 at a purchase price of $70,000.
ID: 2558964 • Letter: O
Question
O'Connor Company ordered a machine on January 1 at a purchase price of $70,000. On the date of delivery, January 2, the company paid $18,000 on the machine and signed a long- term note payable for the balance. On January 3, it paid $700 for freight on the machine. On January 5, O'Connor paid cash for installation costs relating to the machine amounting to $4,200. 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 $7,500. Required 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.) Jan 02 an 03 2 Compute the acquisition cost of the machine Compute the depreciation expense to be reported for the first year. (Do not round intermediate calculations.) 4 What should be the book value of the machine at the end of the second year? (Do not round intermediate calculations.)Explanation / Answer
1. Statement showing Effect on Account and amount of each transaction Date Asset Liabilities + Stockholder Equity Account Amount Account Amount Account Amount 01-Jan No effect No effect No effect 02-Jan Cash -$18,000 Note Payable $52,000.00 Machine $70,000 $52,000 $52,000.00 03-Jan Cash -$700 Machine $700 Total $0 05-Jan Cash -$4,200 Machine $4,200 Total $0 2. Computation of Acquisition cost of Machine Date Particular Amount 02-Jan Cash Paid $18,000.00 02-Jan Note Payable Signed $52,000.00 03-Jan Freight Paid $700.00 05-Jan Installation Cost $4,200.00 Total $74,900.00 3. Computation of Depreciation on Machine for 1st Year Particular Amount Total Acquisition cost $74,900.00 Estimated Residual Value $7,500.00 No. of Year $10.00 Deprciation expense $6,740.00 ($74900-$7500)/10 4. Computation of Book Value at the end of second year Particular Amount Total Acquisition cost $74,900.00 Deprciation expense for 1st year -$6,740.00 Deprciation expense for 2nd year -$6,740.00 Book value at the end of year $61,420.00
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