1. Asset Acquisition, Cost Allocation and Disposal At the beginning of the year,
ID: 2563837 • Letter: 1
Question
1. Asset Acquisition, Cost Allocation and Disposal At the beginning of the year, Chemical Control Corporation bought three used machines from Radial Compression Incorporated. The machines immediately were overhauled, installed, and started operating. Because the machines were different, each was recorded separately in the accounts Cost of the asset Installation costs Renovation costs prior to use Annual Maintenance after production began500 Machine A $10,000 1,600 600 Machine B S38,100 2,100 1,400 400 Machine C $22,000 700 1,600 700 The three machines were using different depreciation methods as follows Machine Depreciation Method Straight-line Activity-based method Estimated Life Residual Value $1,000 2,000 years 33,000 hours (1st year 10,000 hrs 2nd year 8,000 hrs 3rd year 15,000 hrs) years Double-declining-balance 2,400 Q1. Compute the acquisition cost of each machine Q2. Calculate depreciation expense, accumulated depreciation and book value for Machine A in year 1 and year 3; Machine B in year 2; and Machine C in year 3 3. Give the journal entry to record depreciation expense for year 1 and year 2 for Machine A and Machine C Q4. Assuming the company sells Machine A at the end of year 3 for $4,000. Does the company have a gain or loss fronm the sale? How much? Prepare journal entry to record this sale Q5. Assuming the company retires Machine A at the end of year 4. Does the company have a gain or loss from the retirement? How much? Prepare journal entry to record this retirement.Explanation / Answer
PART 1 acquistion cost Machine A Machine B Machine C cost of asset 10000 38100 22000 installation costs 1600 2100 700 renovation cost 600 1400 1600 total acquistion cost 12200 41600 24300 PART 2 machine A year deprecation expense accumulated deprecation 1 2800 2800 (12200-1000)/4 = 2800 2 2800 5600 3 2800 8400 4 2800 11200 Machine B depreciation per unit of production = (41600-2000)/33000 = 1.20 year deprecation expense accumulated deprecation 1 12000 12000 12000*1.2 = 12000 2 9600 21600 8000*1.2 = 9600 3 18000 39600 15000*1.2 = 18000 Machine C year beginning balance rate deprecation expense accumulated deprecation ending balance 1 24300 66.67% 16200 16200 8100 2 8100 66.67% 5400 21600 2700 (1/3*2) = 66.67% 3 2700 66.67% 300 21900 2400 PART 3 MACHINE A debit credit year 1 deprecaition expense 2800 accumulated depreciaition machine A 2800 year 2 deprecaition expense 2800 accumulated depreciaition machine A 2800 MCAHINE C year 1 deprecaition expense 16200 accumulated depreciaition machine C 16200 year 2 deprecaition expense 5400 accumulated depreciaition machine C 5400 PART 4 book value at end of three years = 12200-(2800*3) = 3800 selling price = 4000 debit credit cash 4000 accumulated deprecaiton machinery A 8400 machinery A 12200 gain on sale of machinery A 200 PART 5 book value at end of three years = 12200-(2800*4) = 1000 loss on reteirment 1000 accumulated deprecaiton machinery A 11200 machinery A 12200
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